Charging For Your Product Helps You Focus On Customers Instead of Users
I was just listening to a Podcast from 37signals on product pricing. It reminded me of some the issues we went through when launching ScreenSteps Live. The podcast gives a great overview on pricing principles but they left out one aspect that I feel is really important: charging for your product helps you find out who your customers are.
Discovering who your customers are is crucial and it isn’t as easy as it would seem. When a product first launches it can be picked up by a wide variety of groups. But a product can’t effectively target all types of users so decisions have to be made pretty early on about what type of customer you are targeting. Not charging for your product can push you towards making the wrong decision.
Our launch and continued development of ScreenSteps Live is a great example of this principle.
PRICING DECISIONS FOR SCREENSTEPS LIVE
We launched ScreenSteps Live in January of 2008 at the MacWorld conference. Our ScreenSteps Desktop product had already been in the marketplace for about a year. ScreenSteps Desktop is used to create visual tutorials. We wanted a web compliment to the product that would let users publish their content quickly and keep it up to date when changes had to be made.
When ScreenSteps Live launched there were a couple of different groups that the product could appeal to:
- Bloggers who wrote tutorials
- Educators or people who like to teach others how to do things
- Small to medium sized businesses
As we prepared to launch we had to determine pricing. The decisions we had to make were:
- Would there be a price or would we be in a free “public beta” for awhile as we tried to attract users and get feedback on the product?
- If there was a price, would there be a free plan?
- if there was a price, what would it be?
We opted to charge for the service from day one and to include a free plan. That is easy to say now but it involved a lot of debate at the time. The advantages of a public beta (or, essentially a free service) was that we could get a lot of users. Finally we came down to a simple and important realization – we wanted customers not just users.
In the next 3 months we were able to quickly see what type of customer was adopting ScreenSteps Live. We had all different types of people sign up for free accounts including bloggers, educators and small businesses, but the only type of customer that signed up for paid accounts were those who were doing tech support. They were businesses and organizations that were in the middle of tech support nightmares. And ScreenSteps Live made the nightmare go away so they happily paid the monthly subscription fee.
We instantly knew who our customers were. This guided both or marketing and development efforts. ScreenSteps Live went through a major re-working to target those trying to perform customer support.
The Danger of Users Instead of Customers
What would have happened if we had focused on users instead of customers? We probably had a higher percentage of blogger users than tech support users (the bloggers were on the free plan). If we had used their feedback to guide our development we would have enhanced ScreenSteps Live as a blogging platform. But guess what. A lot of people don’t want to pay for a blog (there are many free options). For those who are willing to pay there are already some major players in the market (TypePad). At the end of the day bloggers weren’t willing to pay for ScreenSteps Live.
Educators fell into the same category. They loved the product. But they didn’t want to pay for it. They suggested a lot of features that they would like to see. But at the end of the day they weren’t really interested in paying for those features.
Charging for the product helped us quickly figure out who our customers were going to be, what they wanted to accomplish and how we could help them.
Looking back, the lessons and insights above seem obvious, but they weren’t obvious when we started out. If we had focused on users instead of customers we could have easily gone down the wrong path, possibly destroying our company in the process.
By the way, we didn’t abandon the blogger or educator market. They wanted to post content created in ScreenSteps Desktop to the web. While they weren’t willing to pay $20/month to do that, they were willing to make a single payment of $40-$80 for a desktop application that would help them do that. After we realized who our ScreenSteps Live customers were we quickly added WordPress, TypePad, Movable Type, MindTouch and Confluence support to the desktop application. We now had the best of both worlds. We could provide a product for bloggers and educators while focussing ScreenSteps Live on the market that was willing to pay the monthly subscription fee.
When you launch your next product ask yourself, “Am I looking for users or customers?” The answer should have a big impact on your decisions going forward.
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December 3rd, 2009 at 5:12 pm
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December 3rd, 2009 at 5:12 pm
Great post! just the other day i read a post about how newspapers are facing a hard time because of the free business models, but still, twitter is there to be an example for free business models that works.
So, this will be one key posts i would like to keep to remind me which to choose next time we launch a product.
Thanks a lot!
http://fauzan.dhezign.com
December 3rd, 2009 at 5:54 pm
[...] This post was Twitted by cary_millsap [...]
December 3rd, 2009 at 7:13 pm
As an individual who bought ScreenSteps 1 and upgraded to ScreenSteps 2 Pro, I felt aggrieved when I realised that the product you were selling was ScreenSteps Live and not ScreenSteps and that the development of ScreenSteps was to further the sales of ScreenSteps Live. I don’t doubt it was good business. To make the choice — user (should that be ‘freetard’) or customer; the individual user who has to pay their own bills or the tech support employee customer whose company pays; the user who paid once or the customer who pays monthly. I know the user who has paid once can still use the product and can use it to a lesser extent with WordPress. I look forward to the 2.7 free update that allows for the copy and paste of image AND text.
I speak as someone who misunderstood the product direction; the pivotal change from ScreenSteps to ScreenSteps Live and your decision that I, who have bought your product and not ScreenSteps Live, whilst not abandoning me, I am a user but not a customer.
December 3rd, 2009 at 7:38 pm
@Neil Sorry if you took this post to mean that you aren’t a customer. You are a customer. You just aren’t a ScreenSteps Live customer. You are a ScreenSteps Desktop customer. We have not abandoned ScreenSteps Desktop by any stretch of the imagination. If you look at all of the updates and export options we have added to ScreenSteps Desktop since the release of 2.0 I think you would be hard pressed to say that we have left ScreenSteps Desktop users behind. And all of those updates have been at no additional charge.
Our goal is to make visual content as easy to create and share as possible. That is why we have so many export options. For some people ScreenSteps Live is going to be the best option. For others, one of our many other export options will work. If we viewed ScreenSteps Desktop simply as a way to get customers to buy ScreenSteps Live then we would give it away for free.
Don’t worry. Development of ScreenSteps Desktop is still going strong. This post is speaking specifically about the ScreenSteps Live service, not ScreenSteps Desktop.
December 4th, 2009 at 7:58 am
LOL Greg
I definitely feel I am a very happy customer of both the Desktop and the Live product – but I’m not in technical support ;-)
We are a small business, a retailer, and have found tremendous marketing power in both SSDesktop and SSLive. But then again, as retailer of high value products we also gained marketing profit from blogs. We are definitely in the “education” market too, one of the Live spaces is used to house our E-version of the installation guide for wooden floors – a big hit! (Which we are now turning into a real book, and there SSDesktop is a great help for).
What makes a user a customer, no matter which trade they are in? Seeing behind the software and recognising the additional profit/benefit it can give you. At least that’s how I see this ;-)
But you are absolutely right: you cannot be everything to everyone, you have to have a core so you can ultimately focus and grow in that direction without losing focus (and clients).
Karin H. (Keep It Simple Sweetheart, specially in business)
December 4th, 2009 at 11:07 am
Think this paragraph has the words wrong:
If we had not focused on customers instead of users we could have easily gone down the wrong path, possibly destroying our company in the process.
December 4th, 2009 at 11:14 am
Doh! Never mind! Missed the not!
December 4th, 2009 at 11:20 am
@David – Yeah, but it still wasn’t very clear. I reworded it.
@Karin – You are definitely using ScreenSteps Live in very creative ways and with what seem like great results. We see a lot of uses for ScreenSteps Live that go beyond technical support. But a new product needs to get a foothold in a certain market. It’s what Geoffrey Moore calls “establishing a beach head”. Once you have the beach head you have more options on how to expand. But if you never get the beach head nothing else matters.
December 4th, 2009 at 9:08 pm
[...] Blue Mango Blog » Charging For Your Product Helps You Focus On Customers Instead of Users (tags: startups lean) [...]
December 6th, 2009 at 12:12 pm
The ‘free’ model is still a great model. I think it depends on what you are trying to accomplish and what your selling (or giving away for free). For us (http://doodlekit.com) it was the best decision we ever made. Most of our paying customers come from free accounts upgrading.
Prior to us offering free services, we had minimal traffic and hardly any paying sign ups. The first week we offered a free version of Doodlekit our paying memberships skyrocketed.
December 7th, 2009 at 5:45 pm
@Heath – I am not against having a free version at all (though we have moved away from a free version of ScreenSteps Live for reasons that I will detail in another post sometime). I am just saying that in addiiton to having a free version you need to make sure you also have a paid version. The paid version lets you know what customers will actually pay for, not just use.
December 11th, 2009 at 3:03 am
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December 11th, 2009 at 4:24 am
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December 11th, 2009 at 11:45 am
Great post. I love posts like this. They are really motivational.
January 8th, 2010 at 4:52 pm
I’m a longtime customer (and fan) of ScreenSteps Desktop and now I guess I’ll have to be of your new blog as well!. We use ScreenSteps for our User Guides, many of our blog articles, and even to produce our Apple Help Book (I posted on the topic using ScreenSteps, of course). I applaud you for taking on the broad topics of visual communication, customer support, and entrepreneurship. You’ve clearly got the right customer-base to engage on these topics. As many companies do, we had to work through many of the same issues of pricing and users vs. customers when launching our product. I use a combination of many free and paid applications, and I’m always happy to pay the price (assuming it’s priced right for the market!) when I find a great app like yours that does just what I need. After all, I know it helps you continue to support and grow the products as well as feed your families ;) I’m always on the hunt to learn from the experience of others and I’ll continue to read with interest. Thanks!
January 8th, 2010 at 6:09 pm
@Jill – So glad to have you reading the blog. Seems that by definition an entrepreneur is in uncharted waters so whatever information we can glean from each other is helpful.
January 9th, 2010 at 12:48 pm
Coincidentally just about the only negative comments I’ve ever had have been from people who claim a copy of my free books, download all my ebooks, watch all my free videos, read articles on my free blog… basically suck up all the free stuff… but don’t want to pay for anything!
I’m just about to release my own software (and no prizes for guessing what great software I’m using to document it!!) and I’ve decided against a free trial version. I’ve also priced it at a level designed to only attract serious buyers.
You’ve reconfirmed my decisions thank you! :-)
January 9th, 2010 at 1:24 pm
@Ed – I actually thinking having free trials of software is good (we offer free trials on all of our software). I think that freemium models can work as well. What doesn’t work is just having a free product. You don’t really get any customer insight with that. You may learn what people will do, but you won’t learn what people will pay for. Charging for a product or having a good freemium model will teach what users will pay for very quickly.
You might want to reconsider not having a free trial. That has been something that has worked out very well for us and is really something users expect these days. Of course this depends on the type of product you are selling.
September 21st, 2010 at 3:54 pm
[...] Charging For Your Product Helps You Focus On Customers Instead of Users [...]
October 13th, 2010 at 10:56 am
[...] I am not a fan of the freemium model, especially for new B2B businesses. We tried it in the early days and things have gone much better since we went away from it. But if you are going to have a free or low cost solution you need to make sure that you have resources in place to effectively scale your business. [...]
January 11th, 2011 at 10:52 am
For a very small SaaS startup, what would help most at the beginning: to offer plans with a 30-day trial only or to (discretely) include a free plan too?…
When you are starting up you have two goals: 1. Find out how to effectively monetize your product. 2. Find out who your customers really are. If you don’t charge for your product you are going to have trouble with both of those goals. You need users t…