When Freemium Isn't Free: In Defense of the Bootstrapper in the Chargify Fiasco | Hacker News Reader

When Freemium Isn't Free: In Defense of the Bootstrapper in the Chargify Fiasco

blog.zferral.com

39 pointsJangoSteve45 comments

The most important line was this.

At zferral, we spent several weeks of development time testing and integrating our application with Chargify. In salary alone, this cost was in the thousands…

This tells me that free was not the price that should have been charged in the first place.

I agree with this. It is a crucial app that anyone would pay for. The gateway alone is about $100/mo. so it is not like we expect it for free.

As I have stated in the comments, the issue is that the price change was not grandfathered is a slippery slope...

A slippery slope to what?

Raising prices without notice.

You are already at the bottom of that slippery slope. Businesses can, do, and should raise their prices, and may do so without notice.

That's what contracts are supposed to prevent.

Contracts are a deterrent, nothing more. Without the resources to enforce a contract it isn't worth the paper it is written on...

This is a seriously reductionist view of the universe. Contracts are a device for securing agreement. You put a contract in place so you can ensure both sides agree on things, like, "we're not going to raise our prices without allowing you a 12 month grandfather period".

You don't get contracts in place so you can sue people.

We're a small business (in the grand scheme of things). We're unlikely to take anyone to court. You think we don't have freelancers (designers, devs) sign contracts with us? That's insane. Of course we do. How else would we all agree on what the freelancers were doing?

Of course. I feel as if you are arguing for the sake of arguing. It's not about their rights. It is my opinion that without consistent pricing (i.e. TRUST) its dangerous to rely on any company.

It is dangerous to rely on startups for a number of reasons. Managing risk is part of being in business.

My chief concern with Chargify's new pay structure is that their lowest tier is perhaps a bit too high for those just getting started (both in price and in the # of users it lets you have). At the same time, I don't see any compelling reason (in the absence of evidence) for them to have a totally free plan.

I don't mistrust them for dropping the free plan; in fact, I now trust that they'll spend more time helping their paying customers.

And finally, Chargify is just as freemium as anything else. In our freemium service, those who have "free" accounts do us a service by providing us with data. You could say it's not "free," since they have to input data, but to take that argument to its extreme, you could say that HN isn't free because you have to type in the URL.

A great reason not to offer a free product: people who are not paying you money will somehow find a way to feel like they have paid you money, just by being willing to talk to you.

I stopped reading after the author cited "salary costs alone" in developing the product as a cost paid by the customer of Chargify. They're disillusioned if they feel like Chargify is somehow responsible for these costs when providing a free product.

I had the same gut reaction, but after some consideration changed my mind.

Look at it from the "average bootstrapper"'s perspective (whatever that is). They needed a recurring billing system, looked around, found one that was good because of its free plan (fully intending to pay as soon as they got enough users to cover the costs). After choosing Chargify on the promise of their free tier, they then spent 1000s of hours of work to integrate it.

Now, I'm not saying Chargify necessarily owes them for their development costs. But there is an implied contract: I'll implement Chargify's api and start working with them until I make enough money to pay, and as soon as I do, I'll start paying. This was the point of Chargify's free tier, and was probably advertised as such. I can understand why people are upset.

I think you mean 'deluded', though they're probably disillusioned too.

I was seriously looking at working with Chargify for our business www.getdashboard.com as they had been doing a great job at marketing themselves and starting to build a community around their brand. Obviously when looking at a company that will be handling your money or at least a big part of your financial process one must do all due diligence. I heard Mr. Hauser speak at a conference and all I can say is that I got a good read on the guy. He sounded cocky and prideful, however he did sounds and spoke as a very smart guy. As Jeff points out in his blog post, trust is one if not the most important factor in any web business specially in one like chargify.

In terms of the freemiun model, Jeff is 100% right. The integration time alone is worth 1000s of dollars. when choosing a billing system one has to weight everything including trust and expenditure.

One thing I want to point out. I don't know the ins and outs of chargify's business and this may very well be a 100% needed change in order for them to stay in business. I don't know and I won't judge.

The integration costs thousands of dollars. It is not worth thousands of dollars to Chargify. Building (anything) is part of your cost structure. It is not reasonable to project your cost structure onto other companies.

Any software developer capable of doing multiplication and division can work out what it's going to cost to integrate someone's API into their app. It is also not reasonable to suggest that you are taken off guard by a pricing change and are thus entitled to consideration for your sunk cost.

If you are worried about not earning back your sunk cost on someone's API, that's what promises are for. Businesses spell the word "promise" c-o-n-t-r-a-c-t.

I hear you... and I rather sign a contract than have this happen to me. Thing is... The TRUST factor is gone. When i have a contract signed that says my price or cost structure isn't gonna change then I don't need to trust.

At the end of the day... all press is good press and this is certainly getting a lot of attention. I'm sure they are having a good time! They may have to clean this mess up a bit but they will be fine.

I agree, its not worth thousands but it is worth > $0.

You must agree this investment by the integrating company makes them unlikely to leave.

A contract is worthless for a company in this situation. The cost of enforcing it is thousands as well.

This is silly. The contract is simply the formal agreement you enter into with your provider. You don't get a contract so that you can sue someone; you get it so both parties actually know what they agreed to.

I assure you, most of your providers do not know that they've agreed that your software development costs are consideration for services they provide you.

This is true. I would be willing to bet that 99% of chargify customers assumed they agreed to the current prices. This agreement (contract or not) is trust.

Thus my point, the trust is lost.

It is clear to me that Chargify users assume they agreed to a lot of things. Some of them appear to be even crazier than "Chargify will never raise their prices or eliminate the free option".

The flaw in the argument that there was lost dev time/resources because they can't use the free api is that the dev time is going to happen no matter which product you're using. The real cost is that if you want to still have a similar no-cost service, you have to put in the money (or time) to switch. How is this any different than if you had integrated with google maps and then they started spamming with ads so you wanted to switch to bing?

This type of complaining is without merit and just looks like grandstanding to further advertise zferral (look at us, we'll never let you down, never turn you 'round).

Oh boy. Seriously? Take a look at Chargify's pricing. It's like 10 cents per customer per month up to 15000 customers, beyond which it's a flat rate.

If this pricing change breaks your business model, you never had one in the first place. The Chargify CEO has my sympathy, as this poster is a classic example of why the customer who pays nothing is so difficult: they feel your product has no value.

Hilarious. You get so angry at the poster and then quote the old Chargify pricing. Maybe you should take a look at the new pricing where it's closer to $0.50/customer, there's no unlimited ceiling over 15k, and the intermediate plans are gone.

As a paying Chargify customer, I can tell you that it pains me quite a bit to see my costs pretty much double overnight, with a big hurt on the way when I hit 500 and then 2000 customers.

>>Quite frankly, as a customer currently under the ‘free’ plan, I was insulted.

Well written post and good points, but .............

If you're not paying for a service or product, are you really a "customer" of the product/service ?

Companies like Chargify see free users as "potential future customers". Companies like Google see free users as "products" that they sell to advertisers.

imo free users need to understand that "user" and "customer" aren't necessarily interchangable and that the two have distinctly different meanings from the perspective of a company that builds products/services (iow not all users are customers and not all customers (e.g. Google advertisers) are users)

If you're not paying for a service or product, are you really a "customer" of the product/service ?

I bet a car salesman considers you a "customer" even when you are "just looking."

you know... the more i think about it the more i think their price structure is wrong based on industry standards. Pay as you grow? Then why not just charge a flat fee per transaction. Make it affordable enough and you'll be solving a whole lot of problems here... Give customers transaction discounts based on minimum... Is not my biz tho but is just a thought.

I did not read the prior blog article the author was referring to, but basically, the author complains much developer time/resources (money) went into implementing a freemium service's API, and then the freemium service essentially locked him in/extorted him (because of his development time/money spent implementing the no-longer-freemium API).

Yep. After reading that I can't help but think dumping customers like him is a great idea. I suspect giving all accounts free access for 6 months and then charging them is probably the best way to avoid bums like him while still letting people use the service before spending anything.

This was definitely not the point of the article. It was to show how the decision making process @Chagify was flawed:

1) Chargify is not freemium to the customer.

2) Trust is important when you integrate and there are significant switching costs (plus recurring billing)

3) Do not blame your customers for incorrect assumptions.

I agree with points 2 and 3 but point #1 is a big stretch. Drop that and people will take the article more seriously.

Chargify isn't blaming their customers for incorrect assumptions, but their customers are feeling the effects of their incorrect assumptions.

With the way things are now at Chargify it costs more to maintain/support a current customer than that customer generates in revenue. You can afford to grandfather old accounts if you can still at least break even on those accounts. If you can't then you have to do something like what Chargify did or your business will cease to exist. The key is to do all that you can to not put yourself in the position that your support costs are so high that you can't be profitable on existing customers.

I blogged more about it here:

http://www.bluemangolearning.com/blog/2010/10/building-scala...

> You can afford to grandfather old accounts if you can still at least break even on those accounts.

They could have grandfathered the existing accounts for at least 6 months or so, but giving any user -- whether a paying customer or a free user -- only 30 days to start paying $100 a month when many of them expected to be paying little or nothing for quite some time? Well, I think that is the height of arrogance and disrespect for the customers on which your business is built -- and an exceptionally effective way to alienate all those free users who MIGHT have become paying customers if only they had been given a reasonable amount of time to adjust to the change ... or even a reasonable new rate for small volume users.

Why not offer something like $5 a month for up to 10 subscribers instead of basically kicking all their free users in the groin? Most small businesses would not bat an eye at such a small charge even if they had only 30 days to start paying or abandon Chargify. But did they offer such a service?

No, the fact remains that the guys at Chargify appear to be way too naive for any serious business to trust or rely on them at this stage of the game. They didn't "get it" when they made their blunder and from what I have seen they still don't "get it".

But no worries, there are others that will pick up the slack ...

Are they users or customers?

You cannot alienate customers that are not your potential customers.

The beauty of this service and the United States is that nobody is forcing you to use Chargify. Also, if you do use Chargify, you can stop at any time, without any penalty.

In fact, Chargify uses an API, so your application can be written in a way that competing and alternate services can be integrated into your application (without requiring major rewrites to your application).

The same logic suggests that Rails isn't really "free"; you have to do work to build a product on it. What does Rails owe its developers?

They owe them the decency not to change the terms of the license mid-stream. The nice thing about Rails, it's on a MIT license which can not be revoked. You can build on rails with the confidence that at least the current version of the software is yours forever.

Chargify is clearly in the wrong here in my opinion. They gave woefully short notice. They jacked the price, and they left no guarantee that won't do it again. I'd be quite nervous as a customer of Chargify that they might do it again.

I'm the same situation with Twilio. We are, right now, far too dependent on them. So far they've always gone in the other direction (gotten consistently cheaper since the day we signed up), but what happens if they jack their rates?

It's scary...

Yes. It is scary. It is also the nature of working with new companies who are, just like you, trying to find their footing in the marketplace. You clearly want predictable pricing and delivery. Every business wants predictable pricing and delivery. What you don't appear to grasp is that established businesses pay a premium for predictable pricing and delivery.

If you want to lock in a rate with Twilio or Chargify or anybody else, get their CEO on the phone and get a contract in place. That's what real businesses do. But don't be surprised to find out that the price for (say) Twilio to lock in a permanent price for you is higher than you want to pay.

You're a startup. You should understand what it means to work with one.

Thank you. I am glad you understood the gist of my post. The point of the FREEMIUM argument is to show:

1) There is substantial value here companies will pay for.

2) We are investing in the company, and there is an expectation of fairness & consistency.

It sounds like you just said that your argument is "Chargify produced something with substantial value that companies will pay for, and we've invested in Chargify by using it without paying."

@tptacek

I am saying is that Chargify falsely presumes companies under a FREEMIUM account are worthless. My point is that they are unlikely to leave [since they have invested their own resources] unless the trust is broken or perhaps, they go out of business...

Chargify made a business decision that the "freemium" accounts weren't worth what the freemium tier cost. You are entitled to disagree with that decision, but I'm entitled to say that to call it a betrayal of trust is hyperbolic and naive.

Fair enough, I appreciate and thank you for your comments..

I'd love to see him stick to the grandfather commitment after a few years of inflation, but I digress.

Going with a startup like Chargify is a risk, they will pivot, they will change. What if they'd gone bust?

Freemium isn't a particularly sensible model for something like Chargify. The author said he'd 'spent' money on it in terms of development costs. It's a lesson. Think before you buy. Don't expect any freemium service to continue giving you something for free.

I found it funny that the person who wrote this has for his company ToS with the following under pricing and plans:

"We reserve the right to modify, alter, create, or discontinue our plans collectively or individually."

http://zferral.com/terms-of-service

To be fair, he did say this in his blog post: "As a CEO, I want my current and future customers to know where I stand. I can guarantee, that any customer of zferral.com will always be grandfathered into the pricing scheme on the day they signed up — if we ever raise prices."

Edit: I'm not suggesting anything more by this. I just found it amusing. =)

Edit 2: Scary. http://blog.zferral.com/post/1313271164/when-freemium-isnt-f... In a funny way. =)

Thanks for finding this Jason. The ticket is already in to change it.

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