David Emery Online

Upgrade Curves

20 February 2006

David Heinemeier Hansson’s comment on my post on Campfire got me thinking about pricing models for the new breed of web services (yes, all that Web 2.0 nonsense…)

While I’m not the biggest fan of Campfire, I can see that from 37signals point of view it makes a lot of sense financially. The basic free version (which interestingly is pitched as a “30 day free trial”, as opposed to the simple “free” versions of Backpack and Basecamp) isn’t really hugely useful – it’s limited to 4 users at a time, and I guess you loose all your logs when your 1 month is up. With the 4 user limit, I really can’t see too many people using it over standard IM programs. However, it works as a really good demo for the non-free versions – which have much higher participant limits, which I could see could be very useful in a collaborative business setting.

I can well believe David’s comment that Campfire has their highest upgrade rate out of all their products – the upgrade curve is just right. Indeed, for some of their other products I think they may have pitched it slightly too low – I’m a big Backpack user; I use it everyday both at work and at home, but I have yet to pay them a dime (not that I’m complaining!).

Traditionally Apple is very good at shaping their upgrade curve just right – just look at their iPod range: you start at around £50 for the base iPod Shuffle, but if you spend only £20 more you get twice the storage! But wait! A mere £40 extra will get you a full colour screen, games, iPhoto syncing and more. Another £40 will get double the storage again, and £40 on top of that is twice the storage more. Now, if you add £40 one more time, you get 7.5x the storage! And you can play videos! And then you release you started at £50 and are now spending £220 – and each step to get their is a no-brainer.

One of the key things that 37signals have realised and put into practise, and everyone else needs to figure out too less this bubble crashes down, is the need to actually make some money out of the web. Free versions are all well and good, but you have to have compelling features that make people want to upgrade, or have an alternative revenue stream (like ads).

You’ve also got to make sure that if you are charging for you main product, and not just charging for the free version + extra features, you let people find out what you product is like before they have to give you their credit card details.

Feedlounge is a new web based, ajaxed-up feed reader, which has a lot of compelling features when compared to it’s rivals. They charge $5/month for their service – which to my mind is too expensive for a feed reader, but that’s another discussion. To let you see what the service is like, they offer a 3 hour demo. 3 hours? Personally, I would never commit to paying money for a service like there’s after only 3 hours, and I’m sure I’m not the only one. They need to either massively extend their trail (minimum 14 days, I’d say) or offer a cut down free version.

The web is far too competitive to limit yourself like this – there is always somewhere else your potential users can go.