Out of a dozen replies, about 10% were pricing their product lower, 30% were pricing the same but taking higher margins, and 60% companies were charging 2.5x-6x more than they used to. Median was around 3.5x. So the majority of companies had marked up their prices severalfold, and only one company had lowered their prices.
It would be really interesting if you could break that down even further.
In a few cases, I've taken the strategy of increasing prices over time as I've solidified and polished my offering. Discounting the product initially to gain enough usage stats to rough out edges, develop an internal support knowledgebase, and suss out unexpected use cases and user segments early on. I'm not sure if those products would have been as successful if I had charged more out of the gate and cut my teeth on those higher-paying individuals.
When you charge a penny extra, that's all incremental margin from the customers you keep, but for the customers you lose, some of lost revenue is balanced by not having the costs associated with supporting them any more.
Pushing the most price sensitive customers out the door isn't that bad, because they're also likely to be the least loyal down the road, and maybe the highest maintenance relative to their spend.
It does make me curious though who the target customer is - somebody who's comfortable setting up a Unix CLI tool for their backups (creating a cron job etc.), yet who wants to cede bucket ownership to a 3rd party and pay a 25x markup for the pleasure? I personally don't mind having to click "Create Bucket" in the AWS console if I get to pay $3/mo instead of $75/mo on my 300GB of data. shrugs
More generally, I suspect you are underestimating the number of people who tick one or more of these boxes: (a) Impressed by Colin's security chops and the security focus of Tarsnap such as its Bug Bounty program; (b) Have never heard of BorgBackup; (c) Value customer support; (d) Are worried that an open-source project would not be maintained and prefer a vendor whose livelihood depends on the product (d) Have experience with Tarsnap on previous projects; (e) Only need to store 20 Gb and for whom saving $5 per month is unimportant; (f) Have revenue in the millions and for whom $75 per month is a rounding error.
Even if there were no such people and Tarsnap's new user growth was zero, it might still make sense for Colin to triple the price of Tarsnap in order to maximise the income from existing users.
With GCP/AWS, you can copy and paste a bucket ACL that only allows PUT operations, and enable versioning to ensure nothing can ever be deleted by overwrites.
With tarsnap there is one person who can delete all your existing backups - Colin, because he owns the bucket. And he will for sure within 7 days of your account falling below a $0 balance.[1]
That might be a feature in case you got killed in a car accident and you want some secret to be buried forever. But for me, I'm archiving my family photos/videos and I'd rather AWS keep charging my account and keep my data alive until my estate can sort out my digital data, which could take months.
> it might still make sense for Colin to triple the price of Tarsnap in order to maximise the income from existing users
And there's the rub. I don't like the idea of somebody holding my data hostage. I'll gladly contribute to a Patreon if an open source developer needs recurring support.
How many people have several months, or a year, of runway on their Tarsnap account balance? Meanwhile, there have been cases of people being dead for years[2] with their auto-pay agreements keeping everything humming along while they rot. Keep in mind that recurring payment agreements often aren't cancelled when a credit card number or expiration date changes.[3]
Finally, AWS will give you about five months of unpaid bills before they suspend your account and delete your data.[4] I would assume GCP has a similar policy.
[1]: https://www.tarsnap.com/legal-why.html#PAYMENTINADVANCE
[2]: https://www.cnn.com/2014/03/07/us/michigan-mummified-body-fo...
[3]: https://www.creditcards.com/credit-card-news/card-updater-se...
[4]: https://www.quora.com/What-happens-after-AWS-suspend-an-acco...
1. What are the benefits and market size of Tarsnap compared to other backup solutions like BorgBackup + GCP?
2. Would Tarsnap make more profit it it raised its prices?
We seem to be arguing about question 1, but Patrick's advice to Colin is about question 2. Earlier you pointed out that Tarsnap is 25 times more expensive than GCP which indicates that Tarsnap's target market is not very price-sensitive. If Tarsnap doubled its prices for new customers would the rate of new signups really drop by more than 50%?
I think it's just the wrong pricing model to have a flat rate per gigabyte. A flat rate looks simple, but far from being transparent or 'honest', it's essentially arbitrary in this case. Other than backend storage, Tarsnap's main non-fixed cost is Colin's time providing support - but that scales mainly with the number of customers, barely at all with the amount of data they're using. Thus, heavy data users are effectively subsidizing light data users, who pay far less than their 'fair share' of costs.
This may be intentional. Not every service tries to provide an optimal solution for every use case.
> it's just the wrong pricing model to have a flat rate per gigabyte.
I have no axe to grind (I'm not associated with tarsnap in any way, I'm not even a user though I have considered it) but some of the discussion here makes people sound somewhat entitled: "I want X, and I don't want to pay more then $Y for it, and any service charging more is silly/bad/ripoff".
Stating that something ins't the best choice (or even a good choice) in some (or many) circumstances is fine, but "it is wrong for me so I don't see how anyone can think that it is right" is an irritating stance.
The pricing model seems to work for plenty of users, enough that it works for the service as it has been successfully running for some time. If you think he is missing out on a huge amount of money from the users who are put off, why not start your own service priced to be attractive to that userbase, and take the profit you see that service as giving away.
> providing support - but that scales mainly with the number of customers, barely at all with the amount of data
Sometimes having lots of small customers works better than having a few large ones, even if you have a few large ones and lots of small ones. With large customers you are sometimes beholden to their whims at the expense of the smaller majority (or they expect you to be beholden to their whims and get difficult if you refuse!).
> but far from being transparent or 'honest', it's essentially arbitrary
Being arbitrary in no way precludes being transparent or honest.
> heavy data users are effectively subsidizing light data users
Only if they don't go elsewhere, which they are perfectly free to do. tarsnap is not in a monopoly position such that people are effectively forced to use it.
(I'm not intending to pick on you specifically, there are other comments I could have responded similarly to, but this post just happened to be the one that tipped the balance on my rant reflex!)
This is a danger for Tarsnap.
What is the target market for Tarsnap vs G/A;
what do they offer at that higher cost that their target market wants? or is their target market simply the ignorant-to-storage-costs-CIOs/IT-departments?
We can argue about whether that really differentiates them from GCP etc, but that's their spin.
Also the tarsnap feature set and security model.
The hyper unixy approach is valuable to some as well.
There are plenty of data sets for which that is reasonable. There are plenty of data sets, perhaps not at your shop, where $0.24 laughs in the general direction of the value of a gigabyte. I previously used Tarsnap at a HIPAA-regulated SaaS app. The fines for unplanned disclosure are measured per-record not per gigabyte; my rough guesstimate on proration is $12 million / GB but what's an order of magnitude or three between friends.
I'll get that might not be attractive to you. You are likely not a good customer for him.
To me, it takes a lot of data and not much amount of my time to make that value proposition waaaaay worth it.
I wish I were at a place in my life where the difference between $3/mo and $75/mo ($36/year vs $900/year) is a non-issue, but unfortunately I'm not. So for now my family photos and videos will have to be securely stored with the (probably) slightly sub-par designs of the open source software I'm using.
The shift that Tarsnap needs to look at is this: how much is the company willing to pay to never lose this data X probability of data loss without Tarsnap. And then subject that number to a ceiling of hiring competent (this is very important work) developers to replicate Tarsnap.
Take that amount that companies would be willing to pay, and then divide by the actual size of the data. A company with 1TB of super valuable data will likely be willing to pay at least $X000 a year to have it safeguarded, which is really $X per month per GB.
If you supported the lower performance edge equipment you got more customers looking for cheap crap, trying to make it do things it absolutely shouldn't, and the customers contacting you were paid less and not that capable of helping you help them... and man were they frustrated.
Higher end data center stuff, routers for big enterprises, you got customers who spent more because they knew what they wanted, knew the product, their company had actual change control, and they were being paid more so they tended to know their stuff and were easier to work with. Granted there was pressure on the high end, but it was more professional pressure.
Within a week, we'd sold our first $995 package. This was for a B2B SaaS.
I'm genuinely asking -
1. 999 - looks cheap
2. 998 - mmm..why not this?
3. 995 - nice number divisible by 5
4. 990 - well...why are we loosing $10 here?
5. 1000 - 4 digits might be considered expensive but 3 might not?
Trying to learn & understand selling to B2B.
500 limit? $499
1000 limit? $995
While this could sound sketchy, business absolutely love it. If that monthly charge is $1000 or $1001, now I need another level of approval and signatures.
$999 (or in this case $995) meant they could whack it on their card and not go through approvals process etc.
Obviously this price point will vary with industry and time, so suss it out in your industry (if it is applicable at all).
It's certainly good advice in the right context, but it does very much depend on that context. For a B2C business, particularly one involving discretionary spending on something your customers enjoy rather than something they need, even a slight price rise can also backfire horribly, and equally a significant reduction can result in disproportionate user growth and retention and ultimately much better returns.
As far as I can tell, the best thing you can do in that sort of environment is test in your own particular situation, study your data, and be very careful about making dramatic changes that you will find difficult to wind back if they don't pay off.
When you go for the lower price point, you're getting people less in your niche and thus want more bang for their buck, or really want a different product entirely.
You’d be surprised to learn how much someone else’s money people are willing to burn, to save face.
I have often wondered if there was a business in just feature copying a well known SAAS business and selling at exactly 50% the price. The selling pitch would be "identical product, but half the cost because we don’t have the massive SV overheads." I have seen quite a few examples of this in practice, but none where it is blatantly stated.
Patio11’s argument is that most companies are charging a safe number that works, however that number is too low. By charging more, yes you will scare away some customers, but the customers who are concerned about price aren’t the customers you want.
In your case, say you cloned something like SendGrid and charged half the price. Their big customers like Airbnb or Uber effectively don’t care how much an email costs to send, they just want to guarantee that it is sent. So if you manage to score a customer like that, you are leaving a lot of money on the table.
On the other hand, the customers that do care about price are likely going to be lower quality, maybe they are sending bulk newsletters which if marked as spam will damage your company (as your IPs will end up on blacklists) - meaning more work, and more cost, cleaning up their mess.
I tend to think the mantra of charging more has gotten a little too popular and I suspect that many companies are now charging too much.
The big customers like Airbnb and Uber very much care how much it costs to send emails. The most price sensitive customers are the largest and they will try to screw you down on price much harder than smaller customers. When you are sending a billion emails the price per email is much more important than if you are sending a hundred.
Taking your example, there is no reason to think that charging less would result in more spammers using your service provided that you maintained equivalent quality controls. Spammers are probably the least price sensitive mass email customers as they are professionals who are most concerned about deliverability and ROI.
In my personal experience, I once chose a host for a game server for my friend group because it was by far the cheapest option. However, one day with only a couple hours warning the host shut down. I didn't even have a chance to download a backup. Had I been running a for-profit server, my entire business would have vanished overnight and choosing the cheapest option would have shot me in the foot. Often paying more is worth the guarantee that stuff you depend on won't vanish overnight.
This goes both ways. You can definitely also increase net present value by pricing higher as long as value > price. Even better would be to create segmented/dynamic pricing that would maximize value capture up and down the demand curve.
If the market pricing is apparently so inefficient that a lot of potential value on the high end isn’t being captured (in economics speak we call this the consumer surplus), then this means there is also potential for arbitrage on the high end. Clone any service and charge 4X!
Probably a more useful approach to take is for the original service to do this - set up your own competitors and see where the customers go. This approach is pretty common in the non-SAAS world.
The way to develop and manage those relationships would likely be very different, and that has implications throughout a company including support, marketing, sales, etc.
You should keep them on a grandfathered plan for at least a period of time and/or nag them to upgrade (optionally with a discount for their trouble).