How Much is that Service in the Window?
December 13, 2015
About 2 years into grad school I began to realize the importance of paying for the things that you love. So many of the apps and services that I used offered a free tier that I used and abused as much as possible because I was a student with very little extra money to spend. A probably embarrassing amount of time was spent looking for free alternatives to the things I really wanted to use. I preferred Zotero over EndNote, I used R instead of SPSS, and I endlessly waffled between Dropbox, Google Drive, and OneDrive depending on who was offering the most free GBs. But I also found that many of the things I loved disappeared because they didn’t find a way to support themselves. Several online services that I enjoyed, like Turntable.fm, disappeared because they could not create the revenue they needed to continue operation. And as a perpetual mooch, I was a part of the problem. So I resolved that, when I could, I would support the applications that I loved to use, because I want them to stick around.
I recently finished grad school and moved on to a real job at a real university, which means I’ve recently moved from having $0 of discretionary income to having approximately $10 of discretionary income each month. Through my time in grad school I survived off of the “free” tier of so many freemium products it’s not even funny. Evernote, Pocket, LastPass, Spotify, Dropbox, Github, and so many other products have the courtesy to offer me a free tier that allows me to use their services without breaking the bank. As a broke student, I appreciated and fully availed myself of those options. Now that I’m out of school, I feel a bit of an obligation to support those services that supported me so well during those lean times. Now comes the issue of cost, however. Most of these services offer a paid tier that gives a few extra bonus features. The question now comes to how much am I willing to pay. I wish I could afford to support all of the services that I love so much, but in glancing around, it’s just not possible.
The true impetus for this post comes from Pushbullet’s recent announcement of their paid tier, Pushbullet Pro. Pushbullet is one of those services I’ve been using pretty much since its creation. It allows me to push links and text back and forth between my phone and computer, and over the time it’s been around has added text messaging and universal copy-paste to its repertoire. With Pushbullet Pro, they have moved some of the previously free features into a paid tier subscription of $5/month or $40/year. Immediately outrage ensued from Pushbullet’s huge fanbase at reddit.com/r/Android and reddit.com/r/Pushbullet. Many have been crying for an opportunity to support the developers, but when the paid plan came out, most seemed to find it too expensive.
In a world of freemium and subscription services, how can a service know what to charge? Most (if not all) operate on elastic demand curves, so charging too much will lead people to seek alternatives, while charging too little may result in more paid customers, but potentially lower total revenue. I investigated the paid options for some of the services I would like to support, and here’s what I came up with:
And this is nowhere near a comprehensive list. If I were to pay for all of the services I would like to pay for, I’d be broke. And I would love to pay to support a lot of these services. However, how much I pay for each of these services and how much value each provides for me are extremely important.
This brings me to the question: how much should you charge for your service? Keeping in mind that your customers likely have a huge number of awesome sites and services with great paid options, how do you decide what price your service is worth to your customers? Here is where I believe Pushbullet made some crucial mistakes. Pushbullet hit a huge wall with their extremely loyal fanbase. Where did they go wrong? I believe Pushbullet made two big mistakes with the Pro service:
- Removing previously free features to begin charging for them
- Charging too much
Crippling the app
The first mistake was crippling the free version of the app in order to charge for it. Some may argue that this is necessary. Pushbullet as it existed prior to the introduction of Pro was really an amazing app that provided virtually everything its users wanted. How else would they get people to upgrade to a paid service than move certain features behind a paywall? This hit a nerve with a lot of fans.
Pushbullet isn’t the first service to begin charging for things that were once free. The New York Times has fought to find a way to charge users to read the news, on an Internet where information wants to be free. But Pushbullet hit hard because not only were they charging for something that was free, they were charging what seemed an exorbitant price for it.
Charging too much
As I mentioned before, pricing any service is difficult, especially in a space where you are really the only actor. Nobody else was providing cross-platform link-pushing, clipboard-sharing, and notification sharing the way Pushbullet does. These services were something users found valuable. But just how valuable was the issue.
When it comes to paying for services online, I believe there are two tiers: (1) the full-fledged application, and (2) the auxiliary service. Evernote, Spotify, and others like it fall into the full-fledged application category. $5-10 per month is a great price, because you use these services daily, and they perform in multiple parts of your life, or take the place of other things. Spotify takes the place of purchasing music, so paying $10/month feels like a great deal, because that’s less than the cost of buying 1 album per month. Evernote can take the place of several other premium note taking apps such as OneNote, and provides additional functionality by allowing clipping web pages and other things. So a $5/month (less, really, since you pay annually) is a fairly good price.
Other things, though, fall into more of an add-on service category. These are applications that add some functionality to things I already do. LastPass is a great example. Web browsers allow me to sync passwords already. LastPass makes that a bit more secure, and decouples it from a particular browser. Allowing me to take it mobile costs $1/month. It’s an add-on. Pocket is a service that I’m not willing to pay the premium price for. I can save pages to read later with bookmarks. I don’t need Pocket to read webpages; it just makes it more convenient. So paying $5/month is not worth it to me. PushBullet is in the same category.
I don’t need Pushbullet. I can text on my phone, or I can use Google Voice to text from my computer. I don’t need Pushbullet to share links between my phone and computer. I can use Google Keep to save a link, and it’s instantly available on any device. I don’t need Pushbullet to respond to notifications on my phone. I can open my phone for that. In short, all of Pushbullet’s functionality can be replicated with just a bit more work. So it falls into the category of an add-on or auxiliary service rather than a full-fledged application providing unique options.
In the end, pricing online services is tricky. It’s never easy to get people to pay for something that was previously free. But you have to take into consideration where your service fits into people’s lives. And how much value you are actually adding.
I'm Ryan Schuetzler, a husband and father, professor at the University of Nebraska at Omaha, and professional nerd. You can follow me on twitter, but there's not much there.