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It's also not even completely altruistic. The free accounts on Cloudflare serve as an incredibly diverse source of first party signal intelligence, which direct

by cosmie 8y ago

It's also not even completely altruistic. The free accounts on Cloudflare serve as an incredibly diverse source of first party signal intelligence, which directly impacts the quality of the offering they're able to provide to paid accounts. The fact that there's at least nominal value to Cloudflare in having me as a free customer gives me confidence and reassurance in using their product, as it lends credence to the long term availability of my free tier account and that I won't suddenly be the victim of a shift in their marketing and sales development budget. I'm not sure what the right term for that type of incentive alignment is, but it reminds of me Geico auto insurance. As a business, their goal is to provide a long term and stable source of float to Berkshire Hathaway[1], not quarterly profits. To do that, they've optimized their business to capture and retain as much market share as reasonably feasible. Their rates are truly reflective of the actuarial expectations of insuring you - there's virtually no profit margin baked in because that could prevent marketshare growth, and you won't get bitten by shady exclusions buried in the fine print that you only find out about when you try to file a claim, and you won't get hit with an unexpectedly huge rate increase at renewal time due to a slightly worse than expected quarter and the need to engineer short term profits. The "gotcha" with Geico's pricing model is that they're using my business as leverage for other purposes (premiums as float to provide leverage to BH). I do a lot of work in optimizing monetization strategies and developing/optimizing business processes, so I may be an atypical consumer. But I have far greater adoption of services when I understand the value drivers of the relationship. If you're not directly making profit off of me, I'm either a marketing expense in your acquisition process or you're using our relationship to derive profit elsewhere. If I'm a marketing expense I'll try to avoid building reliance on your product into my life because the stability of our relationship is unknown. And if you're deriving profit from our relationship and I don't understand how, I'll default to assuming an adversarial relationship where either "I'm the product" or there's a hidden catch coming in the future. Whereas if I know that you're not directly extracting profit from our relationship, and I understand how you're indirectly driving profit from our relationship, I'm far more likely to trust you and integrate your product into my life.

chdaniel 8y ago
You know it, you're a smart dude > If you're not directly making profit off of me, I'm either a marketing expense in your acquisition process or you're using our relationship to derive profit elsewhere. That "elsewhere" might be the word-of-mouth on steroids that I talked about in the article. Send me an email, tell me more about what you do, interested in hearing - daniel@chagency.co.uk
- cosmie 8y ago
  > That "elsewhere" might be the word-of-mouth on steroids that I talked about in the article. I'd argue that still falls under being a marketing expense. Word of mouth on steroids is a fantastic thing, especially so as a strategy for rapidly generating market awareness and validation of your product. But after that initial validation in the market, it's entirely possible to find your business in a position where it no longer get much value from more word of mouth. Particularly if you've shifted from a passive to an active sales org or shifted upmarket to enterprise sales. Optimizely[1] is a solid example of that. They used to have a free Starter plan, and had priced plans that scaled from hobbyist pricing level through to small/medium business pricing levels. They've shed all of that at this point in time, and now have three unpriced plans listed on their site and an enterprise sales process could rival Oracle or IBM in the level of self-assured salesmanship and abrasively aggressive price discrimination/discovery. Having used them at a previous company (starting with the free plan and moving to a ~$400/month plan), I was pretty shocked when I reached out to them more recently to adopt at a new company. Budgets less than $50k/year aren't worth more than a one-liner "no thank you" from their sales staff, budgets between $50k - $100k may be enough for them to do you a great favor in allowing you to become a customer, and budgets above $100k/year will at least get them on the phone long enough for them to tell you what the price floor is for your industry and company size (with actual usage volume being next to irrelevant). Word of mouth on steroids became irrelevant to them to the point where they completely shed not only their free tier but also all of their legacy small/medium business customers, too. And it didn't actually hurt their business any, and likely helped it in the eyes of the high margin customers they're going after now. Contrast that with Cloudflare. Offering a free tier has real costs associated with it. But those free accounts also serve a valuable purpose to their product, and the word of mouth benefits are just icing on the cake. A core selling point of their product is the advanced threat detection and security capabilities that are enabled by the sheer size and scope of their network. The loss of their free tier customers would drastically reduce the visibility they had and in turn degrade the offering to their enterprise customers. Their free tier is a fundamental component of their business/product itself, rather than just an acquisition/marketing/pr cost. Which insulates me as a free user from feeling like the rug is going to get pulled out from under me at any moment when their sales strategy shifts.

by cosmie 8y ago

chdaniel 8y ago

You know it, you're a smart dude > If you're not directly making profit off of me, I'm either a marketing expense in your acquisition process or you're using our relationship to derive profit elsewhere. That "elsewhere" might be the word-of-mouth on steroids that I talked about in the article. Send me an email, tell me more about what you do, interested in hearing - daniel@chagency.co.uk

cosmie 8y ago
> That "elsewhere" might be the word-of-mouth on steroids that I talked about in the article. I'd argue that still falls under being a marketing expense. Word of mouth on steroids is a fantastic thing, especially so as a strategy for rapidly generating market awareness and validation of your product. But after that initial validation in the market, it's entirely possible to find your business in a position where it no longer get much value from more word of mouth. Particularly if you've shifted from a passive to an active sales org or shifted upmarket to enterprise sales. Optimizely[1] is a solid example of that. They used to have a free Starter plan, and had priced plans that scaled from hobbyist pricing level through to small/medium business pricing levels. They've shed all of that at this point in time, and now have three unpriced plans listed on their site and an enterprise sales process could rival Oracle or IBM in the level of self-assured salesmanship and abrasively aggressive price discrimination/discovery. Having used them at a previous company (starting with the free plan and moving to a ~$400/month plan), I was pretty shocked when I reached out to them more recently to adopt at a new company. Budgets less than $50k/year aren't worth more than a one-liner "no thank you" from their sales staff, budgets between $50k - $100k may be enough for them to do you a great favor in allowing you to become a customer, and budgets above $100k/year will at least get them on the phone long enough for them to tell you what the price floor is for your industry and company size (with actual usage volume being next to irrelevant). Word of mouth on steroids became irrelevant to them to the point where they completely shed not only their free tier but also all of their legacy small/medium business customers, too. And it didn't actually hurt their business any, and likely helped it in the eyes of the high margin customers they're going after now. Contrast that with Cloudflare. Offering a free tier has real costs associated with it. But those free accounts also serve a valuable purpose to their product, and the word of mouth benefits are just icing on the cake. A core selling point of their product is the advanced threat detection and security capabilities that are enabled by the sheer size and scope of their network. The loss of their free tier customers would drastically reduce the visibility they had and in turn degrade the offering to their enterprise customers. Their free tier is a fundamental component of their business/product itself, rather than just an acquisition/marketing/pr cost. Which insulates me as a free user from feeling like the rug is going to get pulled out from under me at any moment when their sales strategy shifts.