September 5, 2011

“Freemium” Pricing

There was a nice guest post on TechCrunch today by Uzi Shmilovici about pricing for online/software products.

He presents a useful model for determining whether or not free is right for your product.

The thing I found most interesting was the concept of “the penny gap.” I hadn’t heard this before.

“The penny gap”—the hardest part is to get your customer to pay you the first penny. This is why it is so critical to choose your premium features wisely.

Also of note is the idea that the costs for most online products will trend towards free.

…Because of declining hosting and bandwidth costs, for most Internet products the marginal cost today is practically … zero.

In other words, if the cost to serve a customer (support aside) is zero, the long-term price of the product in the market will be zero (because of competitive pressure).

Check out the post, it’s very thought provoking.