Consumer-based web applications
The staff here at Fusion Bay read a lot of blogs. A few we read are written by popular Venture Capitalists — not because we’re looking for investments, but because they’re interesting to read and seem to have breaking news about new web services and technology companies.
I came across an article today on “The Penny Gap” which I thought was worth a mention: It talks about consumer based web applications and the difference in free vs paid-subscription revenue models.
The article talks about the negative trend of price vs adoption… the more you charge, the fewer subscriptions you receive. That seems logical: fewer consumers can afford your service the more expensive it is. But I wonder: Is there a price point that might increase your adoption? Will more consumers subscribe to something priced higher because they perceive it as higher quality? Or are higher quality things just more expensive?
I remember reading an article on a SOP application a while back, perhaps Fogbugz or Mint (I’m not quite sure) where an increase in price helped the product out tremendously. Their conclusion, as you mentioned above, was that the extra cost added to the “higher quality” illusion of their product.
My gut tells me that products will normally work this way, yet services will not. I think the main reason is that big bucks usually comes from big companies, who will often look at the service and scoff at the idea that they don’t ultimately control the data. We’re slowly bridging this gap but it might always remain. My mindset usually goes like this:
Enterprise:Product
Consumer:Free Service
Small-Mid Business:Depends on application
I’d love to find that article I read and reference it here… drats.
How the price of a product/service affects its demand is what economists call the elasticity of demand. Some services are vital for the consumer and they are willing to pay whatever price necessary to get the service. (inelastic demand) There are other services that folks would find discretionary and would be more willing to drop the service if the price became to high. (elastic demand) The consumer would see if there are alternative supply channels that can service there needs. Is the product/service being offered a commodity or a niche product/service? If it is a commodity then you will be competing based on price and make revenue through volume sales. In the case of niche product folks are willing to pay more for it because of its exclusiveness and you can charge a premium price. The online Wall Street Journal is an interesting example as over a million subscribers are willing to pay for the content and the price is for the most part irrelevant.