The Price of You

Originally written in the summer of 2011.

Last month I stumbled on two very entertaining articles, that made me think for a while on the horrid theme of pricing a product or a service. To be honest almost every freelance project I choose to participate has different specs and set of conditions. So how to calculate the proper price? Jason Fried advises us to jump right in and set some sort of a price, rather than allowing the users to do so. 

So put a price on it and put it up for sale. If people buy that’s a yes. Change the price. If people buy, that’s a yes. If people stop buying, that’s a no. Crude? Maybe. But it’s real.

You can dig into the why’s more deeply over time, but you have to start somewhere. And the best place to start is with real answers.

This works well when you price products, but what about services? A product is something constantly improving and you can change the price as a sort of developing new feature. 

Garrick van Buren’s post provided some insights on these questions. He’s a little bit radical, but who can blame him, after all it’s very hard to make it in the competitive ecosystem of web-based services. 

If you’re building any sort of web service or mobile app and you can’t yet receive money from people – stop. Right now. Stop. For all that is right in the world – stop.

This is true, for example, to the way Facebook and Twitter operate. The only way they can make money and keep sustainable business is by advertising. This moves the focus of their customers – they aren’t the users anymore, but the advertisers. This shift introduces many problems and bidirectional attitude – you both need to satisfy your users and your customers. If you think about it it’s better your users and your customers to be one and the same, so the can be called subscribers. In this case App.net is winning, because it can focus on their subscribers, and build better community by skipping all the problems a free service could introduce. 

In the words of Pinboard creator Maciej Ceglowski:

What if a little site you love doesn’t have a business model? Yell at the developers! Explain that you are tired of good projects folding and are willing to pay cash American dollar to prevent that from happening. It doesn’t take prohibitive per-user revenue to put a project in the black. It just requires a number greater than zero.

In the realities of an overcrowded web having a product or service without business model is simply irresponsible. It can build a lie in the conversation between you and your users. Imagine how Gowalla users felt when the service was acquired and shut down by Facebook. 

For a recap here’s another quote from Garrick’s article:

With enough customers, we can talk about bundling features into different payment tiers. Even completely different products. That’s down the road. But now that mindset exists, the technical capability exists, more paths to success open up. All in this small shift from $0 to >$0.

The takeaway from these articles is the following: It’s boiling down to the point to have something out initially with a price, and then tweak it by reducing/introducing features and different price tiers to satisfy more customers. Also, never forget that the best thing on the internet is that everything is changing fast and you can always refine your judgements. Just be sure to have any sort of metrics, so you can make informed decisions.