
When Freemium Isn't Free: In Defense of the Bootstrapper in the Chargify Fiasco - JangoSteve
http://blog.zferral.com/post/1313271164/when-freemium-isnt-free-in-defense-of-the
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btilly
The most important line was this.

 _At zferral, we spent several weeks of development time testing and
integrating our application with Chargify. In salary alone, this cost was in
the thousands…_

This tells me that free was not the price that should have been charged in the
first place.

~~~
jeffepp
I agree with this. It is a crucial app that anyone would pay for. The gateway
alone is about $100/mo. so it is not like we expect it for free.

As I have stated in the comments, the issue is that the price change was not
grandfathered is a slippery slope...

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tptacek
A slippery slope to what?

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jeffepp
Raising prices without notice.

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tptacek
You are already at the bottom of that slippery slope. Businesses can, do, and
should raise their prices, and may do so without notice.

~~~
btilly
That's what contracts are supposed to prevent.

~~~
jeffepp
Contracts are a deterrent, nothing more. Without the resources to enforce a
contract it isn't worth the paper it is written on...

~~~
tptacek
This is a seriously reductionist view of the universe. Contracts are a device
for securing agreement. You put a contract in place so you can ensure both
sides agree on things, like, "we're not going to raise our prices without
allowing you a 12 month grandfather period".

You don't get contracts in place so you can sue people.

We're a small business (in the grand scheme of things). We're unlikely to take
anyone to court. You think we don't have freelancers (designers, devs) sign
contracts with us? That's insane. Of course we do. How else would we all agree
on what the freelancers were doing?

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carbocation
My chief concern with Chargify's new pay structure is that their lowest tier
is perhaps a bit too high for those just getting started (both in price and in
the # of users it lets you have). At the same time, I don't see any compelling
reason (in the absence of evidence) for them to have a totally free plan.

I don't mistrust them for dropping the free plan; in fact, I now trust that
they'll spend more time helping their paying customers.

And finally, Chargify is just as freemium as anything else. In our freemium
service, those who have "free" accounts do us a service by providing us with
data. You could say it's not "free," since they have to input data, but to
take that argument to its extreme, you could say that HN isn't free because
you have to type in the URL.

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tptacek
A great reason not to offer a free product: people who are not paying you
money will somehow find a way to feel like they have paid you money, just by
being willing to talk to you.

~~~
biggitybones
I stopped reading after the author cited "salary costs alone" in developing
the product as a cost paid by the customer of Chargify. They're disillusioned
if they feel like Chargify is somehow responsible for these costs when
providing a free product.

~~~
edanm
I had the same gut reaction, but after some consideration changed my mind.

Look at it from the "average bootstrapper"'s perspective (whatever that is).
They needed a recurring billing system, looked around, found one that was good
_because of its free plan_ (fully intending to pay as soon as they got enough
users to cover the costs). After choosing Chargify on the promise of their
free tier, they then spent 1000s of hours of work to integrate it.

Now, I'm not saying Chargify necessarily owes them for their development
costs. But there _is_ an implied contract: I'll implement Chargify's api and
start working with them until I make enough money to pay, and as soon as I do,
I'll start paying. This was _the point_ of Chargify's free tier, and was
probably advertised as such. I can understand why people are upset.

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estegonza2002
I was seriously looking at working with Chargify for our business
www.getdashboard.com as they had been doing a great job at marketing
themselves and starting to build a community around their brand. Obviously
when looking at a company that will be handling your money or at least a big
part of your financial process one must do all due diligence. I heard Mr.
Hauser speak at a conference and all I can say is that I got a good read on
the guy. He sounded cocky and prideful, however he did sounds and spoke as a
very smart guy. As Jeff points out in his blog post, trust is one if not the
most important factor in any web business specially in one like chargify.

In terms of the freemiun model, Jeff is 100% right. The integration time alone
is worth 1000s of dollars. when choosing a billing system one has to weight
everything including trust and expenditure.

One thing I want to point out. I don't know the ins and outs of chargify's
business and this may very well be a 100% needed change in order for them to
stay in business. I don't know and I won't judge.

~~~
tptacek
The integration _costs_ thousands of dollars. It is not _worth_ thousands of
dollars to Chargify. Building (anything) is part of _your_ cost structure. It
is not reasonable to project your cost structure onto other companies.

Any software developer capable of doing multiplication and division can work
out what it's going to cost to integrate someone's API into their app. It is
also not reasonable to suggest that you are taken off guard by a pricing
change and are thus entitled to consideration for your sunk cost.

If you are worried about not earning back your sunk cost on someone's API,
that's what promises are for. Businesses spell the word "promise" c-o-n-t-r-a-
c-t.

~~~
jeffepp
I agree, its not worth thousands but it is worth > $0.

You must agree this investment by the integrating company makes them unlikely
to leave.

A contract is worthless for a company in this situation. The cost of enforcing
it is thousands as well.

~~~
tptacek
This is silly. The contract is simply the formal agreement you enter into with
your provider. You don't get a contract so that you can sue someone; you get
it so both parties actually know what they agreed to.

I assure you, most of your providers do not know that they've agreed that your
software development costs are consideration for services they provide you.

~~~
jeffepp
This is true. I would be willing to bet that 99% of chargify customers assumed
they agreed to the current prices. This agreement (contract or not) is trust.

Thus my point, the trust is lost.

~~~
tptacek
It is clear to me that Chargify users assume they agreed to a lot of things.
Some of them appear to be even crazier than "Chargify will never raise their
prices or eliminate the free option".

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allenp
The flaw in the argument that there was lost dev time/resources because they
can't use the free api is that the dev time is going to happen no matter which
product you're using. The real cost is that if you want to still have a
similar no-cost service, you have to put in the money (or time) to switch. How
is this any different than if you had integrated with google maps and then
they started spamming with ads so you wanted to switch to bing?

This type of complaining is without merit and just looks like grandstanding to
further advertise zferral (look at us, we'll never let you down, never turn
you 'round).

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ramanujan
Oh boy. Seriously? Take a look at Chargify's pricing. It's like 10 cents per
customer per month up to 15000 customers, beyond which it's a flat rate.

If this pricing change breaks your business model, you never had one in the
first place. The Chargify CEO has my sympathy, as this poster is a classic
example of why the customer who pays nothing is so difficult: they feel your
product has no value.

~~~
MicahWedemeyer
Hilarious. You get so angry at the poster and then quote the old Chargify
pricing. Maybe you should take a look at the new pricing where it's closer to
$0.50/customer, there's no unlimited ceiling over 15k, and the intermediate
plans are gone.

As a _paying_ Chargify customer, I can tell you that it pains me quite a bit
to see my costs pretty much double overnight, with a big hurt on the way when
I hit 500 and then 2000 customers.

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credo
>> _Quite frankly, as a customer currently under the ‘free’ plan, I was
insulted._

Well written post and good points, but .............

If you're not paying for a service or product, are you really a "customer" of
the product/service ?

Companies like Chargify see free users as "potential future customers".
Companies like Google see free users as "products" that they sell to
advertisers.

imo free users need to understand that "user" and "customer" aren't
necessarily interchangable and that the two have distinctly different meanings
from the perspective of a company that builds products/services (iow not all
users are customers and not all customers (e.g. Google advertisers) are users)

~~~
blantonl
_If you're not paying for a service or product, are you really a "customer" of
the product/service ?_

I bet a car salesman considers you a "customer" even when you are "just
looking."

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estegonza2002
you know... the more i think about it the more i think their price structure
is wrong based on industry standards. Pay as you grow? Then why not just
charge a flat fee per transaction. Make it affordable enough and you'll be
solving a whole lot of problems here... Give customers transaction discounts
based on minimum... Is not my biz tho but is just a thought.

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chopsueyar
I did not read the prior blog article the author was referring to, but
basically, the author complains much developer time/resources (money) went
into implementing a freemium service's API, and then the freemium service
essentially locked him in/extorted him (because of his development time/money
spent implementing the no-longer-freemium API).

~~~
jeffepp
This was definitely not the point of the article. It was to show how the
decision making process @Chagify was flawed:

1) Chargify is not freemium to the customer.

2) Trust is important when you integrate and there are significant switching
costs (plus recurring billing)

3) Do not blame your customers for incorrect assumptions.

~~~
gdevore
I agree with points 2 and 3 but point #1 is a big stretch. Drop that and
people will take the article more seriously.

Chargify isn't blaming their customers for incorrect assumptions, but their
customers are feeling the effects of their incorrect assumptions.

With the way things are now at Chargify it costs more to maintain/support a
current customer than that customer generates in revenue. You can afford to
grandfather old accounts if you can still at least break even on those
accounts. If you can't then you have to do something like what Chargify did or
your business will cease to exist. The key is to do all that you can to not
put yourself in the position that your support costs are so high that you
can't be profitable on existing customers.

I blogged more about it here:

[http://www.bluemangolearning.com/blog/2010/10/building-
scala...](http://www.bluemangolearning.com/blog/2010/10/building-scalable-
support-lessons-learned-from-the-chargify-price-increase/)

~~~
owkaye
> You can afford to grandfather old accounts if you can still at least break
> even on those accounts.

They could have grandfathered the existing accounts for at least 6 months or
so, but giving any user -- whether a paying customer or a free user -- only 30
days to start paying $100 a month when many of them expected to be paying
little or nothing for quite some time? Well, I think that is the height of
arrogance and disrespect for the customers on which your business is built --
and an exceptionally effective way to alienate all those free users who MIGHT
have become paying customers if only they had been given a reasonable amount
of time to adjust to the change ... or even a reasonable new rate for small
volume users.

Why not offer something like $5 a month for up to 10 subscribers instead of
basically kicking all their free users in the groin? Most small businesses
would not bat an eye at such a small charge even if they had only 30 days to
start paying or abandon Chargify. But did they offer such a service?

No, the fact remains that the guys at Chargify appear to be way too naive for
any serious business to trust or rely on them at this stage of the game. They
didn't "get it" when they made their blunder and from what I have seen they
still don't "get it".

But no worries, there are others that will pick up the slack ...

~~~
chopsueyar
Are they users or customers?

You cannot alienate customers that are not your potential customers.

The beauty of this service and the United States is that nobody is forcing you
to use Chargify. Also, if you do use Chargify, you can stop at any time,
without any penalty.

In fact, Chargify uses an API, so your application can be written in a way
that competing and alternate services can be integrated into your application
(without requiring major rewrites to your application).

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mattmanser
I'd love to see him stick to the grandfather commitment after a few years of
inflation, but I digress.

Going with a startup like Chargify is a risk, they will pivot, they will
change. What if they'd gone bust?

Freemium isn't a particularly sensible model for something like Chargify. The
author said he'd 'spent' money on it in terms of development costs. It's a
lesson. Think before you buy. Don't expect _any_ freemium service to continue
giving you something for free.

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jasonlotito
I found it funny that the person who wrote this has for his company ToS with
the following under pricing and plans:

"We reserve the right to modify, alter, create, or discontinue our plans
collectively or individually."

<http://zferral.com/terms-of-service>

To be fair, he did say this in his blog post: "As a CEO, I want my current and
future customers to know where I stand. I can guarantee, that any customer of
zferral.com will always be grandfathered into the pricing scheme on the day
they signed up — if we ever raise prices."

Edit: I'm not suggesting anything more by this. I just found it amusing. =)

Edit 2: Scary. [http://blog.zferral.com/post/1313271164/when-freemium-
isnt-f...](http://blog.zferral.com/post/1313271164/when-freemium-isnt-free-in-
defense-of-the#comment-86975532) In a funny way. =)

~~~
jeffepp
Thanks for finding this Jason. The ticket is already in to change it.

