Assistly’s Pricing Gamble: A Case Study in Freemium

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it was too complex. “Customers were confused about which bucket they belonged in,” Bard says.

The system was also generating what might be called feature envy. “The $39 users might see one or two features that they would love to have, but the cost to switch was pretty high,” says Bard. “So you’d start to get a base of users who were dissatisfied, but didn’t convert up.”

Finally, there were many potential customers who couldn’t afford even the lowest-tier plan. “By listening to people who went through our trial experience and did or didn’t become customers, we identified this category of companies who loved our service but couldn’t afford it,” even at $39 per user per month, Bard says. “By the way, you can put all of the TechStars companies and the startups coming out of all these other boot camps into that category. They just don’t have $500 a year to put into customer support.”

By replacing the tiered pricing with a simplified freemium model, Assistly was able to eliminate all three of these problems in one stroke. Getting started with the system is now faster, because customers don’t have to decide between buckets. If customers get feature envy, they can add just the features they want, for an a la carte price. And if they can’t afford to pay at all, they can still sign up for one free account.

But the new freemium model isn’t simply a way to correct old problems, Bard says—there are also some positive reasons behind the change. One major rationale for making the first seat free, Bard says, is that “none of our large competitors are doing it,” which could help to differentiate Assistly in a market where Zendesk, RightNow, and other makers of customer-support platforms have big head starts. (Assistly only recently crossed the 1,000-customer threshold.)

Another big reason to introduce a free product: it’s a pretty good way to make customers love you. “The benefit isn’t necessarily that you will be able to convert some percentage of the free users to premium,” says Bard. “It’s that if you do this, you can build a fanatical user base that effectively becomes your marketing channel. They go out and help you acquire customers, and those customers may have larger requirements, and will pay you. So in large part, this is Assistly really aggressively coming to market and starting to build our brand.”

Bard says the pricing overhaul has been in the planning stages for about six months, and is “one of the biggest releases in the company’s history.” It’s definitely the kind of change that requires buy-in from the board of directors—so to get some extra perspective, I contacted Phil Black, one of the founding partners at San Francisco-based early stage investing firm True Ventures. True invested in Assistly early this year, alongside Bullpen Capital, Index Ventures, Social Leverage, and, and Black is on the startup’s board.

He says the pricing change was a smart move because … Next Page »

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Wade Roush is a contributing editor at Xconomy. Follow @wroush

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