More and more frequently, I notice that online services charge $10/$15 a month. For example. I just saw a service that tracks your laptop/phone, and they want $15/mo to track more than three devices.
B2B services are more excusable, but still, the fees are pretty high. It seems to me that you need to spend $150 a month to subscribe to the 10 services you might find useful. $2/$3 a month sounds much better to me, especially for services for which users aren't very expensive.
What are your experiences with this (from either standpoint)? How much do you pay a month for various online services?
$15 is ridiculously cheap. Don't even get me started for businesses: $15 pays for a third of the cab fare for your consultant to get from the airport to your office. For a revenue generating app it is a no brainer.
$150 is not much for a person to be spending on ten identifiable line items, either. Maybe if you only know poor college studentsr that sounds like a lot of money. For a middle class family, that sounds like a cable bill. If your service is in the top five most important things for mom in her life, price in two digits is irrelevant. She spends more on shampoo, hair care, feminine hygiene, paper, magazines, romance novels, etc, etc.
On the one hand: I have subscription fatigue. I've reached a point at which I'm hestitating to use services because the number of current $10-$20 subscriptions I have no longer fits in L1 cache and it often isn't worth it to me to evict cache lines to figure out what I'm spending --- and so I bounce.
On the other hand, next to the cost of having employees, my rational brain knows I can't possibly be spending real dollars on these things. Put in perspective: every Matasano employee has an Amazon account for which they can buy any book they want ever --- we even have a rule that says "don't worry if someone else bought the book, if you want the book it's yours and you keep it and you can share if you want to but don't worry about it" so that people won't waste time coordinating books instead of just getting what they want and getting back to work. This policy, which we concluded won't cost us "real" money ever, is much more expensive than all my $10-$20 subs ever will be.
But the subscriptions "feel" more expensive.
The answer to the original poster's question is: these things cost $10-$20 because the people running the service feel like they will generate approx. $10-$20 worth of value, and those are the terms under which being in business to generate that kind of value makes sense. In many cases, if the service actually turns out to be worth $3/user, they'll shutter it and pick something better to work on.
It's not amazing. It benefits Matasano more than it benefits any individual team members. It would be ridiculous not to have the policy; people would deliver crappier work for clients and waste everyone's time bugging us for books. In the worst case, one of the managers might get a bug up their ass and start thinking about what books people should get; calamity!
There are a very few conditions:
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Nothing in there says you can't use this policy to buy Denis Johnson's _Tree of Smoke_ to read on the train. Nobody has, but if someone did I'd probably just smile.
Actually, by spelling things out, we aim to make people feel more comfortable ordering books: it's clear that we've thought things out, and that there isn't some "mistake" you're going to make ordering (say) a copy of K&R2 when there are already 2 copies in the office ("your book privileges are suspended, Peter!").
For something you want, maybe. But a lot of these services fall into the category of "I might find it useful sometimes but I'm not sure" and most people aren't going to spend $15/month on something they're not sure they want.
The average Tarsnap revenue per user is about $3/month, and a large majority are less than that (yay lognormal distributions!) but I still work to convince people that it's worth spending that money.
Respectfully, Colin, but you price Tarsnap horribly. You run it like a public utility (a very complicated public utility) instead of a business.
You think this is a good thing, but it's not. Instead of setting a simple price based on what Tarsnap is worth to people --- a task that requires figuring out what Tarsnap is worth to different people and selecting the segment of the market that(a) you want to serve and (b) is sufficiently lucrative --- you have a fundamentally cost-based micro-metering structure that almost certainly radically undercharges most of your users.
You may think you're doing your users a favor by letting them off easy. But you're not. If Tarsnap is worth $11/mo to most of your users (hint: it is) and you charge $10/mo, you're generating value for them. But instead of doing that, you charge them almost nothing, and as a result are much more limited in what you can do for them. Last I checked, you were consulting instead of full-timing Tarsnap.
If you charged more, you could afford to:
* Radically overhaul your website and educate users about what secure backup actually means
* Commission a better user interface for people who you'd like to offer secure backup to but can't because they're not going to use a Unix command-line tool
* Implement more and better features on the backend of your system for tracking data, scheduling backups, backing up different kinds of data, and whatnot
This is all apart from the obvious point that your micro-metered pricing scheme is a Mensa test that almost makes fun of people's attempts to figure out what your service costs. Yes, the fact that it costs much too little means the joke is on you, but that doesn't really take the sting out of it for your prospective customers.
I'm quite likely in the minority, but I strongly gravitate to services that 1) use a cost-based micro-pricing scheme; and 2) that I trust to not mark-up unreasonably much. Generally I want to offload the "how much should this kind of thing cost?" calculation to someone else who I can trust to calculate it accurately, add on a reasonable profit margin, and charge me that amount. I definitely avoid companies that I feel are instead trying to figure out how much they can get me to pay, and then pricing it at that.
One example, which I use for hosting, is nearlyfreespeech.net. Amazon's and Google's cloud services have a similar utility-pricing model, though I'm not sure how much I personally trust them to price in line with costs, especially whether they're going to pass on future cost decreases. Prgmr.com is a flat fee rather than a combination of micro-prices, but it has a little of the same vibe of, "I calculated how much it should cost to operate these servers, divided by the number of VPSs, added on a reasonable profit margin, and that's what I'm charging", which is one reason I went with them.
It's not even necessarily the overall price that worries me so much as liking the general warm-and-fuzzy feeling that I'm not getting a hugely marked up service. Same as when shopping for, say, a mechanic: I feel most comfortable with a mechanic I can trust to charge me what the repair costs, plus a reasonable profit, not one who's trying to size me up to figure out how much the repair is "worth to me".
I'm glad you're consulting. I hope you consult a lot more, so you'll come around to my way of thinking on the futility of advising generalist devs on writing crypto primitives. So look at it this way: if you'd stop running Tarsnap like a subsidized metered utility, you could hire someone to compensate for your weak spots.
It is, as Patrick will testify after many an evening conversation in Chicago, "all love" with you & me & these critiques. Your project should be epic by now, and it's driving me a little crazy.
Since you seem to know a lot about pricing, could you give me a few pointers on what one would charge for something like http://historio.us/? Apparently you guys feel that $15 isn't a lot of money, but where I live it's not disposable income...
* you have to find out what the value your service generates is to different groups of customers (an MBA would call them "segments").
* you have to figure out the cost of acquiring and maintaining customers in each segment.
* you price based on the value (if it creates $10/mo apparent value, that's the number with a gravitational pull).
* bust out cleverness to figure out ways to capture money from high-value low-volume segments without scaring away low-value high-volume segments.
I'm close enough to Colin's target market to know that "just stick the server's filesystem in tarsnap and don't even bother taking an inventory of what's on the machine" is worth multiples of S3+80% just in recovered admin productivity.
Can you make it a browser add-on instead of bookmarklet? I don't know about the others, but I find the bookmarks toolbar clumsy and unnecessary and never turn it on. But I have at least a dozen add-ons installed.
Yes, we already have a chrome extension and a firefox extension is in the works. Unfortunately, only opera allows you to place bookmarklets anywhere in the UI. I don't like the toolbar very much either, but you can also add it to your bookmarks menu, it's just a bookmark.
That only makes his pricing model worse, not better. He's doing $3/user (ie: not enough) and managing to chase off serious users by forcing them to think carefully about the pricing.
Here is a hint, Colin: any time a prospect says he's "run the numbers" on your pricing, you just received a strong signal that you need to simplify pricing. Purchasing decisions should be made in the limbic system.
Think about it: if you charged $5/mo and put an obscenely high cap on storage for the $5/mo account, then by your own math you'd be hugely improving your revenue, and at the same time you'd be charging half of this original poster's pain threshold number --- which is referring not to crazy encrypted backup solutions but to things like to-do lists!
At EnterAct, the ISP I ran tech-ops for, my old boss Mike Cloran came up with what he called the "5/30" pricing scheme, which we used to great effect to grab customers from other ISPs. Other ISPs were either metered (which scared the shit out subscribers) or flat-rate (which chased away light-users). The 5/30 plan was: $5/mo + $1/hour, capped at $30.
This is actually not a great deal and it is not particularly sophisticated (it is... wait for it... a capped metered plan). But it simplified the buying decision for people, addressed their perceived risks, and made EnterAct seem even more flexible than it already was.
Pricing is the hardest part of product marketing. There's a reason why established companies don't let just anyone do it. Your pricing scheme punts on it.
Think about it: if you charged $5/mo and put an obscenely high cap on storage for the $5/mo account, then by your own math you'd be hugely improving your revenue [...]
... and also hugely increasing my costs. With all due respect, I've talked to a lot more Tarsnap users than you have, Thomas, and I also have the advantage of seeing how much data people upload and how much they delete.
Your suggested pricing model would result in people uploading far more data and never deleting any of it, and would very rapidly move Tarsnap from "profitable" to "bankrupt".
I'm sure you think me crazy, but that's what I was aiming for. I want people to be able to say, like _delirium and wwortiz did, "this is clearly a reasonable price because he's using S3 for backing storage and we know how much S3 costs".
A critical part of trust is transparency, and in the long term I think I'll do better by having transparent and obviously reasonable pricing than by obscuring things and trying to maximize my (short-term) profits.
I think you guys are just looking at value differently.
I didn't know about either of your companies but by the discussion, its clearly possible for Tarsnap users to derive value from the trust associated with transparency and feeling like their dollar is maximized.
tptacek, pricing schemes aren't the only component of the purchase decision or profitability. His users are making a more emotional decision. cperciva should stick to the core of what his users are finding valuable...then get bought out and turn into an evil profit maximizing company
Seeing how Amazon's whole business model is basically to commoditize storage (and cycles and database queries) and drive prices as low as possible, their price per gigabyte seems like a very dangerous star for Colin to hitch his wagon to.
You know what? Newsflash to all the brilliant people trying to make a mint by playing S3 middlemen... You're one free-software client from being irrelevant. $10/month is enough to motivate me to hack in my spare time. At $3/month... meh, maybe I'll scratch a different itch.
For the sake of argument (or, because you trust me on this), let's stipulate that Tarsnap is significantly more secure than duplicity; things can go wrong with duplicity (or create untenable administrative headaches) that don't with Tarsnap.
Tarsnap isn't just an S3 middleman. The Tarsnap client-server API is considerably more powerful (e.g., transactions, amortized S3 PUT costs) and you can't replicate the functionality on the client alone.
$7 a month for how much of your time? $7 for me is less than 10 minutes of time a month and I graduated school in May, it's not like I'm making an outrageous salary. $7 is the difference between going out to Subway for lunch or making a sandwhich in the morning, which is a decision I base every single day solely on how I feel when I wake up in the morning.
Where do you live? I want to get a coffee some time, talk Putnams, and tell you why pricing in pico dollars attracts pathological customers who are the worst possible people to sell online backup to, and why instead you should be selling to people who happily pay a hundred times what you are currently charging.
Not specific to cperciva: If you have customers who value your service less than a cup of coffee, fire them. If this leaves you with no customers, consider a new app or marketing strategy.
Vancouver, Canada. (Well, Burnaby technically, but close enough.)
I want to get a coffee some time [...]
Sure! Let me know if/when you're ever in Vancouver.
If you have customers who value your service less than a cup of coffee, fire them.
I disagree. The money I get from Tarsnap's $0.01/month users is insignificant, obviously -- but they're worth many $/month for their willingness to proselytize. The utility pricing model is like the freemium model, except it weeds out the people who aren't willing to pay anything at all.
"and tell you why pricing in pico dollars attracts pathological customers who are the worst possible people to sell online backup to"
When I saw the pico-dollars bit on the site I instantly knew this was not someone I wanted to do business with. The sort of person who tries to prove his intelligence constantly rarely has the ability to cut through the fat to get into the meat of the matter. They'll play in the weeds all day long, but never climb the mountain for a good view.
I agree with Patio11, buck up grow a pair and charge good money. It looks like you've got solid infrastructure, it just needs to be charged for and sold.
I never even thought about the pricing model. But you're right he isn't doing rent extraction properly. I merely saw how he presented himself with "picodollars" and thought to myself "I know this guy. He spent twenty minutes telling me about the great deal on peaches he got".
Seriously, switch to $/Gig, and sell the hell out of it. I don't care how smart you are. Show me how you can make my life better/simpler then get the hell out of it.
1. True story. I've gained a good nose for these people and I just walk away after the first encounter.
There's also a mental barrier that comes up when you see something unusual. I don't think about my expenses in pico dollars and I don't think about my important data in bytes. The worst part for me is that at $0.30/GB for storage and bandwidth the cost seems so low that I really don't even care if I'm using a full GB or just 12 bytes. Charge me the $0.30 and be done with it. If I can't glance at the service and guestimate how much it would cost me I'm not going to stick around long enough to find out.
I'm surprised you don't see the humour in a 'pico dollar'.
I thought - this guy has DJB sized balls, I really want to use it. portsnap was great, this will be too.
And I don't even have a beard.
Colin has a platinum backed BSD pedigree. Tarsnap appears to be aiming at BSD minded users in the first instance ie people who mostly know what they are doing. Colin's grown tarsnap out of what he knows, the BSD aesthetic. What you know is a really good place to start.
But now, to grow tarnap beyond the BSD commandline pico-niche, something I really hope Colin does, because he's earned the success, it could / should adopt a Jungledisk like model. With an OS X desktop client, clearer pricing, and Apple level UX/marketing. And clients for home storage devices like Qnaps etc. And yes he should charge much more for that. Tarsnap does seem bizarrely, wonderfully cheap. And long may it remain that way... on the commandline.
Ca I upvote this about 50 times? I Googled the service, saw "picodollars", and bolted. And I'm a hardcore geek who knows Linux well, has compiled Apache from scratch on Solaris, ran a web hosting company for 6 years, etc. etc.
Not listening to your customers will make it rough road for your company. Your customers say don't price in picodollars. Your customers say price flat rate and figure out how much storage you can afford to give them for that rate while still making a healthy margin. You'd do well to listen to them instead of justifying why you should continue to scare potential customers away.
Tarsnap should white label the service and keep the existing pricing. It will increase their volume drastically and the really low pricing will allow a lot of people to build a very profitable business on top of the service.
Someone then can charge 20$/month and a buck a gig for storage with some flashy mac/iphone/ipad app and kill it.
There's nothing to stop you building services on top of Tarsnap. In fact, I've deliberately arranged things (e.g., the flexible and easily scripted tar interface, and CSV format downloads of usage data) to make it possible to do this.
If you want to build a service on top of Tarsnap, please let me know and I'll do my best to provide you with whatever interfaces you need.
Just because a discounted price for a year up front works out to be a low amount per month, doesn't mean it's worth little to the business charging it. Depending on the business, it might actually turn out to be $4 a month if that user were prone to cancelling after 6 months. Additionally, there is alot to say about money in the bank now to fund development now.
I would be happy if our 20k users all payed for a year up front discounted by 30%, rather than a full-price for every month. Why? Because we don't have much income now, and getting the money now would allow us to expand much faster, so the next 20k users would signup quicker, and would not have the big discount for an entire year up front.
Also, the overheads (credit card fees etc) are often lower on $25/year billed yearly then $2/month billed monthly (once you are at Yahoo's scale this might not apply, but for a lot of businesses there is a flat fee for processing credit cards below a certain threshold).
This is because the psychological upper limit at which people start to take notice of what appears on their credit card statements when they decide to decrease their monthly expenses seems to be around the $20 mark.
As long as you're below $20 plenty of people will continue a subscription until their card expires even if they don't use a service, above that the cancellations go up, so do the chargebacks and the retention goes down.
This has been researched ad nauseaum by the services you refer to, which is why they all converge on the same price range.
As one anecdote, I wouldn't have paid for historious at more than the $20 a year I paid (I hesitated, and decided it was worth it due to the usefulness and the fact you seemed like a cool bunch). It's a cool service, but not THAT cool. I could always go back to forgetting URLs, or using Google Reader to remember them.
It's important to remember that "expensive" is relative. Depending on an individual's income or company's revenue, $10/$15 can be huge difference or just a drop in the bucket. When a business is billing out consultants at $150/hr, spending even $100/mo on something that makes employees more productive or efficient is generally a good decision.
It's important to not only look at the cost of the product but also the benefits that it provides. Do the benefits outweigh the costs to the degree that you're comfortable spending the money?
To put it another way, it's more useful to think about the value of the tool relative to the price. It's less about whether a given dollar amount is "expensive", and more about whether the value exceeds the cost.
For example, all told, we gladly pay upwards of $200/mo for hosted services that are not necessary to run our business. However, the value that we receive from that money far exceeds the dollar amount that we spend on them. So in this case, even though $200 isn't insignificant, the dollar amount alone isn't relevant. We consider the services "inexpensive" because the value relative to the price is amazing for us.
Phase 2: Instead of complaining create a "service bundle" of services you would use together that add up to $150, contact the service owners and ask them to get into a bundle agreement for $50 bucks total, you take $5 on each sale.
Isn't appsumo a temporary deal? At least I took it that way, kind of like those cable deals where it is 30 dollars a month for 6 months so long as you sign for 2 years except with this you don't sign a contract you just can't use them for less than full price anymore (unless I missed that).
You could easily pay 2$ per transaction + % of the revenue to credit card processor. So, 2$ price tag = 0$ profit, or even loss.
Also it's probably about 8 times simpler to get one $15/month subscriber than eight $2/month subscribers.
It's the market. If it was feasible to sell those services for $2/month - there would be competitors taking advantage of that fact. Since there's (I assume) none - that means it's not economically reasonable to sell something at that price.
If it was feasible to sell those services for $2/month - there would be competitors taking advantage of that fact.
I think Apple has proven that with the App Store. You couldn't buy many professionally developed for a few bucks 5 years ago, even those that took as much development time as the top titles on the iPhone now. Apple has made the billing and distribution side so simple that development time and expenses are almost the only variable.
Yes, but that actually proves the point. I don't mean that it actually costs banks $2 to handle a transaction. It's what they charge small businesses for a transaction. If you're Apple and can negotiate a 5cent (or whatever) fee per transaction and able to sell apps to millions of customers - then $2 apps would be profitable. For all other approx. 99.999% of companies out there - $2 per app or month is just not feasible.
It depends on the value you get. Some SaaS are free or cheap, they probably cost little to the company, or the company is running cheap (single founder in ramen).
Now for how much a single person spends, it's a different story. Let's assume your target audience is software developers. An average software developer should net more than $5,000 a month. Spending $150, is like 3% of his salary. Not a lot, so he could even subscribe to more services and more expensive services.
If your target audience is Egypt for example, where the developer net $200-$250/month, subscribing to only one service may cost 10% of his salary. So it's a luxury he can't afford.
Bottom of the line, your target audience and market readiness is the one that decide the price tag for your SaaS.
Really depends on the service. If you think of a laptop/phone tracking service as a productivity/accountability tool for businesses to keep an eye on their workers it only has to save 2 hours of productivity in a month to pay for itself even if you're deploying it for minimum wage workers. (unlikely) If the service is too inexpensive they have more users to support and many of them may decide that even $2-$3/month is too expensive if they don't have any good reason to be using the service in the first place. If they keep the price high they attract fewer but higher quality customers that are cheaper to support. I'm guessing many of these services do offer good volume discounts.
When you're aiming at consumers, I think <$5/month or <$50/yr is definitely a better price point. I think Flickr Pro's ~$25/yr pricing is much more in line with something most consumers would go for. And that's even at the semi-pro level. But, when you're aiming your app/service at professionals, freelancers, or small/medium business, then slightly higher prices might fly. Still, though, there are so many "must have" apps now, that the subscription fatigue should start hitting people bad.
What I'd really like to see is more webapp service synergy. Most of us would be much more likely to pay $10-$15/month for Dropbox + Evernote Pro + Backpackit.com Personal (substitute your favorite webapps in here) than they would to pay ~$5/month/service. Something about the bundling would make people feel like they're getting more for the price, even if the absolute price is the same.
I don't think your basis for deciding those prices are too high is a rational one. It basically amounts to, "I think those are too high because... I think they are too high!"
There was often someone slaving away long hours to create and make that service available to you, all of which cost big bucks or at the very least, the opportunity cost of their time is big bucks. $15 is nothing in the grand scheme of things. You are always free to create the service yourself and/or scratch that itch another way.
$15 dollars for a "useful" service is nothing. The average person spends that "everyday" for lunch.
The companies offering these services have to charge enough to pay for the servers, developers, tech support, etc.. and yes, also to make a profit, it is a business after all ;)
here is our pricing page for a Web CMS service targeted to designers. one of my big concerns is that people correlate a hosted CMS offering to the cost of standard hosting so our prices seem high, any feedback on your first impressions of value/price would be appreciated.
Grandfathering also has the benefit of making people very happy with your service, and reluctant to ever cancel their account. I keep my usenet provider account because I am afraid of losing my 25% discount I received when I signed up two years ago, even though I don't necessarily use the account to it's "full potential".