February 23, 2011

Pricing strategy: What is your next-to-nothing threshold?

A while ago (a long while, in fact - this post has been in draft state for forever), when travelling, my harddisk broke down. I had thought until then that my ad-hoc backup regime was sufficient. Not quite so. It was a combination of three things (in addition to the, too dated, ad-hoc backups) that more or less saved me: Subversion, web based email and Dropbox. My Dropbox account was a free one, but as you can imagine - I have now upgraded to a paid plan to have more space (I am really a fan of the service, by the way!).

But this post was not intended to be about backups, rather about pricing. The hours (and potential data) lost in the above transformed me from a enthusiastic evaluator[1] to a paying user of Dropbox. Their price point of 10 dollars per month was just above my next-to-nothing threshold before, but after this near (data) death experience, 10 bucks suddenly seemed like nothing.

Micro payment (when I say micro, I mean micro - think 1-10 cents for a one time access to some content) was for a while a sort of holy grail for many in the online business. I think the hope for this type of payment patterns might be waining, but a new "next-to-nothing" paradigm has certainly emerged in app stores, such as Apple's or the Android Market for mobile devices.

Also subscription based services of various sorts seem to manage to convert at least a small portion of its registered users into actual customers (in my world he is not a customer until he pays for the service!). Other examples of small payments include donations (Wikileaks, anyone?) through PayPal and others. Personally I have donated to a couple of open source projects, for instance the pdf generation program I use for all my invoicing etc. in my firm. I do not have hard facts, but I think these schemes are on the rise as well - and payments are often quite small, so I will include them in the next-to-nothing bag of pricing schemes.

Some, grumpy theorists in particular, may claim that the next-to-nothing threshold is just a special case of perceived value vs. price. That could be, but it is still an interesting one. I also think that in general, the next-to-nothing-limit can be very close to nothing for personal use, but often a bit higher for a service aimed at professional users. This is a particular challenge for the pricing structure for the launch of an exciting B2C service I am a bit involved with this spring - probably another post on that later.

One last thing: The power of really paying nothing should not be underestimated. Even if your next-to-nothing offering looks very compelling on its own, that could change very rapidly as soon as someone (such as Google, as a not quite randomly selected example) offers the same service for free...

[1] - If you haven't tried it, please do - it is purely great to have access to what you know is the latest version of the file both on iPad, phones, PCs and Macs -- as well as from a web based interface.

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