At last week’s True University startup school event at Berkeley, Alex Bard, CEO and co-founder of San Francisco-based Assistly, moderated a session on freemium business models; his panel of startup veterans spent an hour delving into the pros and cons of offering free products as a way to drum up new business. It turns out the subject wasn’t just a theoretical one for Bard. This week Assistly, which offers a Web-based customer support platform similar to Zendesk, significantly overhauled the way it charges for the service. It made the first seat free for all customers, and greatly simplified its prices for other levels of service.
Granted, this might not be the most earthshaking news to hit the Bay Area technology scene this week. But Assistly’s move is a risky one that, in the short term at least, entails some loss of revenue; the young, venture-backed startup is balancing those costs against the hope of recruiting more customers down the line. So it’s an interesting case study in the thinking behind freemium products and pricing—which, needless to say, is a subject of great interest to many Silicon Valley startups, especially those using the Web as a delivery channel. I sat down with Bard yesterday to talk through the changes and the logic behind them.
As I explained in a profile article a few weeks ago, Assistly’s main product is a Web-based system that monitors Twitter, Facebook, and other social-media channels for customer complaints, and helps customer-support reps be more systematic about responding to them. Before this week, Assistly offered companies tiered pricing—a fairly common phenomenon in the world of business-focused Software-as-a-Service (SaaS) products. Companies could pay $39 per user per month for the lowest tier of service, $69 for the middle tier, and $99 for the highest. The differences were in the level of customer support Assistly itself offered to users, the number of Twitter and Facebook accounts that could be tracked, the number of e-mail inboxes that customers were allowed to plug into the system, and so forth.
Now, by contrast, the startup is offering a flatter pricing scheme, starting with the simplest price possible: nada. The first full seat on Assistly’s system is now free; adding a second user costs $49 per seat per month, as does every user after that. In addition, companies can pay $1 per hour for part-time usage—an option designed for employees or managers who only need occasional access to the platform. (There used to be a $19 monthly up-front fee to use the flex-hour option, but that too has been eliminated.) If customers want more functionality, “a la carte” upgrades are available; monitoring extra e-mail inboxes, Twitter accounts, or Facebook pages costs $29 per month per inbox, account, or page.
“When we launched the tiered pricing model, we thought it made sense,” Bard says. “Certain customers have certain requirements, and they could self-select the buckets. It’s a pricing psychology that Salesforce.com, 37signals, and a lot of SaaS customers have really put into practice well. And it does help you to optimize revenue.” If just a few customers opted for the $99 plan, for example, it could help to underwrite the much larger number of customers who selected the $39 plan.
But the more time the startup spent talking to companies in its target market of small-and medium-sized companies, including many who had opted not to use Assistly, the more it realized that its tiered pricing was having some unintended effects, Bard says. For one thing,
