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This is similar to the classic blunder by service product strategists who tier pricing by both capability and scale, rather than one or the other. This results

This is similar to the classic blunder by service product strategists who tier pricing by both capability and scale, rather than one or the other. This results in nonselection of the product rather than the hoped-for upsell.

exhilaration 10y ago
"Nonselection"? Did you see the HN post a few days ago [1] about Nginx reaching 33% market share? They seem to be doing very well. [1] https://news.ycombinator.com/item?id=14078589 https://news.ycombinator.com/item?id=14078589
- user5994461 10y ago
  It's simply replacing Apache that is old and deprecated. Nothing fancy.
- inopinatus 10y ago
  Markets are measured in dollars, not usage. The last press release I read from Nginx* says they have barely more than 1,000 paying customers, and shied away from real revenue numbers, but I doubt anyone would place a bet that it is on the order of magnitude of revenues due to e.g. IIS on Windows Server, or even the revenues that Oracle & IBM collect for their rebadged Apache. * https://www.nginx.com/press/nginx-carries-strong-business-momentum-2017/ https://www.nginx.com/press/nginx-carries-strong-business-mo...
toufka 10y ago
Curious - for us non-strategists could you give another sentence explaining your thought here. I don't quite get why scaling both would prevent a sale - but it appears like hard-earned insight.
- inopinatus 10y ago
  Sure. And yes it is. Bear in mind my perspective is mostly SaaS B2B. Two perspectives on this: 1. Some of my smallest customers are actually lighthouse customers for the rest of their industry. When they can't afford a price-segmented "enterprise" feature then I miss out on their super valuable product feedback and word-of-mouth. I've seen this pattern in sport, telecoms, public transport, k-12 education. About the only place I haven't seen it is the financial sector. I have been both the customer missing out and the provider in this scenario. 2. If a large enterprise is prepared to buy many units, but won't use your high end features, they can just pay for the cheaper end unit. You likely just missed out on revenue. They may well have been interested in later adoption of your more sophisticated stuff, but because they bought the cheap product it'll never happen because at scale the cost step function of going up a tier is perceived super negatively. So you also miss out on feature adoption and product feedback. I have only been the customer in this scenario. I have seen it in both the financial sector and government. It almost happens in healthcare, but they are easily manipulated into higher price segments by placing HIPAA compliance stuff there. NB: Personally I find that kind of manipulation to be toxically abhorrent and when I've been the customer used it as a red flag against doing business. Nonetheless it is common. Overall- To me, business strategy is all about the creation and capture of value. When you find a product model that creates a virtuous cycle between those two aspects of value, you likely have a winner. The best example I can give validating my experience is AWS, where everyone can use everything on a pay-as-you-go basis. I have been both a customer and on the inside with AWS. The model is incredibly empowering for startups having access to this massive box of capability, and moreover enables enterprises to do long-term planning of feature adoption with price stability. The only time I recommend charging more for an enterprise feature is because it costs you significantly more to deliver it and there is no other way to capture your share of the value created or use scale to drive down the marginal cost of delivery. A wise PM will want to separate that out into a separate product. A classic example is providing a TAM over and above your hopefully already universally excellent support desk. The counter-example to this point of view might be Slack. I cannot fathom why they both tier their capabilities and then charge per seat. Hard to see how SSO and AD sync adds to marginal cost per customer seat, and the storage and uptime promises are similarly paper thin value adds. It is one of the reasons I never recommend them. Yet they are apparently successful, perhaps because their product is crack for dev teams. So execution certainly still matters. And no doubt other counter-examples can be easily found. But if you want to maximise your market engagement, it is essential to know how your customers behave in the product selection process in response to the signals you give them. Sorry that was more than one sentence. I was waiting for a compile.
MichaelGG 10y ago
Any citations or info on tiering by features and scale being wrong? Do you mean as two independent axis? Most services I see combine both features and scale. "Enterprise" features (like logging, RBAC, etc.) are available along with the highest volume plans.
- inopinatus 10y ago
  I'd say they're correlated, which is part of the reason the fallacy arises. But the coefficient is different for every customer, so unless you're in a market with homogeneous buyers, any segmentation you devise is very likely to be wrong for almost everyone. See my longer answer nearby for some pathological examples.

exhilaration 10y ago

"Nonselection"? Did you see the HN post a few days ago [1] about Nginx reaching 33% market share? They seem to be doing very well. [1] https://news.ycombinator.com/item?id=14078589 https://news.ycombinator.com/item?id=14078589

user5994461 10y ago
It's simply replacing Apache that is old and deprecated. Nothing fancy.
inopinatus 10y ago
Markets are measured in dollars, not usage. The last press release I read from Nginx* says they have barely more than 1,000 paying customers, and shied away from real revenue numbers, but I doubt anyone would place a bet that it is on the order of magnitude of revenues due to e.g. IIS on Windows Server, or even the revenues that Oracle & IBM collect for their rebadged Apache. * https://www.nginx.com/press/nginx-carries-strong-business-momentum-2017/ https://www.nginx.com/press/nginx-carries-strong-business-mo...

toufka 10y ago

Curious - for us non-strategists could you give another sentence explaining your thought here. I don't quite get why scaling both would prevent a sale - but it appears like hard-earned insight.

inopinatus 10y ago
Sure. And yes it is. Bear in mind my perspective is mostly SaaS B2B. Two perspectives on this: 1. Some of my smallest customers are actually lighthouse customers for the rest of their industry. When they can't afford a price-segmented "enterprise" feature then I miss out on their super valuable product feedback and word-of-mouth. I've seen this pattern in sport, telecoms, public transport, k-12 education. About the only place I haven't seen it is the financial sector. I have been both the customer missing out and the provider in this scenario. 2. If a large enterprise is prepared to buy many units, but won't use your high end features, they can just pay for the cheaper end unit. You likely just missed out on revenue. They may well have been interested in later adoption of your more sophisticated stuff, but because they bought the cheap product it'll never happen because at scale the cost step function of going up a tier is perceived super negatively. So you also miss out on feature adoption and product feedback. I have only been the customer in this scenario. I have seen it in both the financial sector and government. It almost happens in healthcare, but they are easily manipulated into higher price segments by placing HIPAA compliance stuff there. NB: Personally I find that kind of manipulation to be toxically abhorrent and when I've been the customer used it as a red flag against doing business. Nonetheless it is common. Overall- To me, business strategy is all about the creation and capture of value. When you find a product model that creates a virtuous cycle between those two aspects of value, you likely have a winner. The best example I can give validating my experience is AWS, where everyone can use everything on a pay-as-you-go basis. I have been both a customer and on the inside with AWS. The model is incredibly empowering for startups having access to this massive box of capability, and moreover enables enterprises to do long-term planning of feature adoption with price stability. The only time I recommend charging more for an enterprise feature is because it costs you significantly more to deliver it and there is no other way to capture your share of the value created or use scale to drive down the marginal cost of delivery. A wise PM will want to separate that out into a separate product. A classic example is providing a TAM over and above your hopefully already universally excellent support desk. The counter-example to this point of view might be Slack. I cannot fathom why they both tier their capabilities and then charge per seat. Hard to see how SSO and AD sync adds to marginal cost per customer seat, and the storage and uptime promises are similarly paper thin value adds. It is one of the reasons I never recommend them. Yet they are apparently successful, perhaps because their product is crack for dev teams. So execution certainly still matters. And no doubt other counter-examples can be easily found. But if you want to maximise your market engagement, it is essential to know how your customers behave in the product selection process in response to the signals you give them. Sorry that was more than one sentence. I was waiting for a compile.

MichaelGG 10y ago

Any citations or info on tiering by features and scale being wrong? Do you mean as two independent axis? Most services I see combine both features and scale. "Enterprise" features (like logging, RBAC, etc.) are available along with the highest volume plans.

inopinatus 10y ago
I'd say they're correlated, which is part of the reason the fallacy arises. But the coefficient is different for every customer, so unless you're in a market with homogeneous buyers, any segmentation you devise is very likely to be wrong for almost everyone. See my longer answer nearby for some pathological examples.