Lock Em In, Raise Em Up
What would you do if you had all of your critical information contained within a web application only to see the prices for the service increase 25%-100%? You applaud the fact that the vendor was able to achieve vendor lock-in because now they are capable of raising prices whenever they choose and the majority of users have no choice but to pay. From a business perspective that may be considered genius.
However, from a relationship perspective how do you view it? What becomes more important to you, the relationship with your customers or the bottomline? Isn’t it safe to assume that their is a direct correlation between the two?
You might consider this a bad strategy, but what if you could get the people who speak highly of your product to speak louder than the ones that disapprove of your practices? Is it okay then? And even better, if when someone speaks negatively about you they get flamed to death and are looked at as being jealous of your success.
Do you achieve lock-in or do you achieve trust? Just a ton of questions I have and really don’t know the answer to.
Related reading:
I think I know what you’re referring to… I think the key is to not get locked into the particular web app that you are using. The point of using a web app is convenience, it shouldn’t be the total answer to any problem. What happens if you don’t have access to the web? what happens if the data in the web app that you’re using is compromised? You should always have a back-up of all your data on your desktop, and you should always be able to pick up from where you left off if you choose to no longer use that app online.
As for raising prices, this will eventually happen it’s just a matter of time, I think the issue is whether or not the price hikes are fair and justified.
Just some thoughts.
By Nick Dominguez on May 5, 2005 2:03 pm
Good points Nick. Yes it would be best to able to access the data both online and offline, but with certain services we are just not given that luxury. I know it goes along with don’t place all your eggs in one basket, but what if you only have one basket?
By Scrivs on May 5, 2005 2:08 pm
Ok, first of all, from a consumer perspective:
The web service would have to be REALLY REALLY great for me to use it without requiring a fully-functional export function. Usually, my very first requirement of a web service is the ability to export my data should I want to walk away. Del.ici.ous? Yep, I can export that. Dreamhost? Yep, I can export that. Even Hotmail (which I don’t use) lets you export your mail to your local machine.
Now, from a business perspective:
Depending on the initial price of the service, a 25%-100% increase may or may not be a big deal. I think the key is finding the number that is at the upper end of the “not a big deal” spectrum. Service costs $10 a month now? Ok, raise to $14 a month then. Not a big deal. Service costs $5 a month? Raise to $10 a month. Probably still not a big deal, as long as the customer knows why the increase is occurring.
That’s the key… the customer needs to rationalize the increase in price by correlating it to an increase in utility. If you can announce the addition of 10 new features, even if the customer didn’t necessarily ask for those features, they can say “Oh, ok, well I can see why it’s a little more expensive now.”
Price increases such as the kind you’re talking about require a bit of research before executing. You need to know what your customers’ price elasticity is, and what their threshhold is for thinking they’re being taken.
By Mike D. on May 5, 2005 2:26 pm
On the flip side, consumers should understand that price increases are necessary and to be expected. Due to inflation alone, things should be more expensive from year to year, even if nothing has improved about the service. Too many times consumers think that all price increases are the result of a provider’s greed.
By jim on May 5, 2005 3:34 pm
I’d be really interested to know which web app you’re referring to.
By Paul on May 5, 2005 3:39 pm
As would I Paul.
I definitely agree with Nick about not putting all your eggs in one basket. No matter what type of information it is, if it is important in any way, shape or form, always keep a copy on your local machine.
By Jeff Smith on May 5, 2005 3:54 pm
The reason that I don’t bring up the name of the service is because it would greatly take away from the discussion. I would much rather discuss the theory of it all with everyone having a clear mind.
And keeping a copy on your local machine just doesn’t work in all cases.
By Scrivs on May 5, 2005 4:46 pm
Does this mean I’ll have to pay double the current rate for Forevergeek news?
Time frame for the increase is a big deal. An announcement that all users signed up after X date will pay the higher price, combined with keeping existing customers at the same rate for 6 months or a year would go a long way to easing the bite. It may even lead to surge in new business from clients trying to grab the old price, helping the company offset not immediately raising prices.
If a highly-regarded project management app started jacking up the price “effective next month,” they would screw over the customers who have projects that aren’t complete and can’t have a seamless transition for their clients built in 30 days.
On the other hand, a six month warning would give a customer time to budget for the extra cost (perhaps in padding his bill) or at least transition to a different service. While their terms of service reserve them the right to change prices anytime with a 30 day notice, I think they have the customer service savvy to know retaining customers (and giving departing customers less to gripe about) is worth the cost of not immediately raising prices.
By Rob on May 5, 2005 9:32 pm
From a business perspective, it depends on whether you’re shooting for short-term or long-term games. “Lock ‘em in and raise ‘em up” is a tool that can often result in great profits — for a while.
Eventually customers will trickle away, and their sour faces are going to put off a good number of the people that were considering the service. Buzz will fizzle, bad karma will get around, and eventually the business will falter.
In the long term, transparency and customer service are what make people enthusiastic about a product, and what will help secure it for the long term.
Besides, cheating people isn’t any fun. Being good to people, on the other hand, is a heck of a lot of fun.
By James Archer on May 5, 2005 10:10 pm
Of course. Hope you can afford free x $0. Timeframe is definitely a huge ordeal and admittedly you are lucky to even get any knowledge of a change ahead of time.
You would think though that users who signed up before the price increase would be able to keep the current rates. At least that is what I would expect and if not provide an easy mechanism to get their data out of there.
By Scrivs on May 5, 2005 10:10 pm
Step out of the normal web paradigm for a second, and think about the larger information structure this situation could be applied to. Here’s a good example:
Extremely large organization X sells widgets internationally. They have shipping software which needs to talk with sales software which needs to talk to production software which needs to be administrated by …… well you get the point. Distributed frameworks all need to be interoperable so that money can be tracked, ultimately, from every side of production.
They have no damn clue how to integrate all these applications, so they bring in SAP to do it all for them. SAP charges them $XXX million over 3 years to put together uber-complex integration solutions that tie everything together and mow your lawn at the same time.
Say that contract negotiations fall through somewhere through the 1st year of work. Company X has been happily plugging along on the not-yet-finished SAP solution, relying on the beta app to hold all their mission-critical sales and financial data. SAP — if the contract lets them — could potentially say “well we’re going to pull our entire application out if we don’t get the money, and then all your data is gone too since it’s totally proprietary and custom.” Oops. High-tech ransom.
By Mike Rundle on May 6, 2005 1:40 am
From a developers perspective I can see the validity of the rise in prices for certain services. As an example: If you build a great Web app/service that enables people with pay accounts to “host” data of any type on a remote system, and it becomes popular, hosting are going to rise. Backup procedures will increase. Hardware will need to be upgraded or even bought. So, having a great application that lends itself to ever growing data, can force companies to increase rates.
That being said, if you do your research before hand and figure out what the cost-per-customer is, rate raising should be held at a minimum.
Sometimes, the initial research is done with the thought of “What if this service isn’t popular”. So the cost-per-customer might be pretty high. However, as your customer base increases, that cost-per-customer could actually decrease. So the “day-one” rates will actually start yielding more profit.
The reasons for rate raising are simple 1) Piss poor cost-per-customer research/estimates. 2) Greed.
This is, of course, excluding any app/service which starts out free and becomes a pay-for service. Since any rate at all would be considered an increase.
By Colin D. Devroe on May 6, 2005 1:43 pm
From a vendor-in-development’s perspective, the free/cheap thing is a great way to get mass adoption. The key, however, is communicating from the beginning that free isn’t always going to be. It’s all about transparency, and I think that kind of honesty goes a long way.
Ultimately, the free/cheap app model just doesn’t work forever (even though people try to convince themselves that it does).
Mike D, you brought up an important point though: Openness (of data). If you’re not locked in, I think you’re probably going to be more positive towards the vendor anyway (even if they do raise prices). It’s about feeling that they’ve really thought about you - all the difference in the world.
By Martin on May 6, 2005 6:14 pm
I think Mike makes a key point here.
If the data and the service are easily separated it makes this kind of thing a much easier pill to swallow. To me, as long as I can get out if I want to, I’ll have an easier time deciding if I want to stay in.
As far as dealing with increased usage fees, etc. I think it’s good to be as open there as possible and explain, clearly, why the price has gone up and what I’m getting.
A lot of this depends on the service. If I’m happy with a service chances are I’ll stay with it through a rate hike if it’s reasonable and it brings something good to the table.
But that’s just me.
By Keith on May 6, 2005 6:57 pm
I’m an idealist, but I believe that taking care of your customers is always first. To base a business off of bait and switch might be good for short term revenue, but it’s no way to sustain a viable long term business.
The lock in is really only superficial. There will be a price point where it will be worth it for people to leave or find an alternative. When they do leave under those circumstances, you can rest assured they will not return. And they will make sure they tell everyone else to stay away as well.
The realist side of me however says that it’s much more complicated than that. How many customers will you lose at price point A vs. how much additional money will you make on the remaining customers. Less customers = Less support = Higher margins? The examples go on and on, and it can get complex.
At the end of the day, business is business, I personally would prefer to take care of customers and let capitalism take its course. However, if you want some easy short term money, raise those prices and pray that nobody decides to start a competitor.
By Garrett on May 9, 2005 2:43 am
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Personally, I believe that if the business is a transparent one, then users
will not mind an increase in price if they can see the real benefit of what
they’re paying for.
Look at my web host - TextDrive [http://textdrive.com/]. Just a glance
around their forums [http://forum.textdrive.com/] will tell you that the
admins are willing to be as transparent as possible. Information flow is
important, and thus the community built around TextDrive is a wonderful
one. One of the great things is that you can post a message, for example,
asking if it’s possible to do XYZ. If it’s possible, then the admins will
help you along with it, even though it’s not an officially supported thing.
If it’s not, then a reason will be given as to why they won’t do it, and
it’ll be a valid one such as “it poses too much of a security risk because
it can’t be setuid and has to be run as root”.
In such a free community, if one of the admins were to say “We want to buy
some new servers because we feel that bandwidth on the existing ones is
getting slow with the load, and we want to spread people out on the servers
more”, I don’t think there would be that many objections to an increase in
price.
The key here is transparency — people want to see real tangible benefits
for their extra money.
- — Andy
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By Andrew Ho on May 14, 2005 5:44 pm