Comment by qeorge | Hacker News Reader

Comment by qeorge | Hacker News Reader

This reminds me of The Strategy and Tactics of Pricing[1], in a funny way (bear with me).

In pricing, if you have features in common with other vendors then those features are commodities and basically valueless. But the features you have that no one else has - those make you priceless.

For example, S3's uptime record makes it a different product than e.g., DreamObjects, even though they are API compatible.

Similarly, while VCs are all providing the ultimate commodity product (dumb money), its the features which no one else has that make investors like Ron Conway priceless. There's plenty of other VCs, but they are not substitute products for Ronco.

Finally, the way to find these unique, priceless features is to look for extremes:

    - Cloud hosting with not just 99.99% uptime, but 100% uptime
    - Email inboxes with not just a lot of storage, but *unlimited* storage
    - Photos developed not just faster, but *instantly*
    - A VC with not just a great track record of doing the right thing, but a *perfect* record

And as a consumer, these are the companies you want to do business with: the Rackspaces, the Ron Conways, and the Stripes of this world.

[1] If you read one business book this year, make it The Strategy and Tactics of Pricing. If you don't think a book on pricing can change your life, you haven't read this book. Protip: get an older edition and save a ton of dough.

Qeorge, I also recommend Principles of Pricing by Vohra. I'm taking his class right now at Kellogg, fascinating stuff.

http://smile.amazon.com/Principles-Pricing-Analytical-Rakesh...

Thank you so much Brian! I'll start reading it right away.

The class sounds great as well, and I hope you enjoy it. If you find yourself compelled to share anything in particular, I'd be very interested to hear it. Maybe you could do a blog post?

For what it's worth, Seth Godin's book All Marketers Are Liars also covers the material in your specific example. It probably doesn't cover most of what's in the rest of The Strategy and Tactics of Pricing, though imho the idea of 'going to the extremes' is so important that it's really worth reading an entire book just on that idea.

That's a great book too - I like Seth's writing style. I believe he calls this "finding a edge".

TSATOP is different because teaches you to actually quantify the value delivered to the customers. i.e., how much, in real dollars, is 100% uptime going to save us over 99.99%?

It seems like a small difference, but its not: 100% uptime unlocks new business models that don't work with "only" 99.99% uptime (e.g., banking software or API companies). That's what TSATOP really explains - how to quantify the seemingly minute differences in your offering, and how to communicate that value to the customer so that you can charge accordingly.

To use an example actually from the book, how much money will a DNA testing kit that requires 10% less sample material be worth to a customer?

Well, first that depends on who the customer is - its a lot more valuable to a pharma company than a university, for example. But how much more? The book would do something like calculate the number of new drugs the pharma company can release each year based on having this better DNA testing kit, and calculate how that affects the customer's bottom line. Eventually this would result in something like: every time you use our product instead of our closest competitor, it puts $50 in your pocket.

Seth Godin's writing is awesome for motivation and to get your brain moving, but this book really drills down on the nuts and bolts of pricing, and provides templates and worksheets for performing your own Economic Value Estimation of your product. Both are really useful, but this one is more like a textbook, whereas Seth's is more like a (very) motivational speech.

Nice, I'll definitely go through this. For a typical freemium product, do you see it as being most useful when one is ready to start building out monetizable features, or do you see it as being essential for building an mvp and finding the most basic level of product-market fit? (Given that understanding the implications of pricing would probably be useful immediately, but learning it would also take time away from building the product.)

I think pricing is the very first thing you should think about, before features. Once you know what's actually valuable to your customers, it'll be easy to figure out what features to build to deliver it.

This book probably isn't an excellent fit for freemium pricing models. Its more about pricing B2B products, instead of consumer products. But you should still read the book anyway, because it teaches you to understand your customers' problems (and the value of solving those problems) at such a deep level that you would never be willing to part with that much value again for free.

Furthermore, and this is the big takeaway from the book, you're[1] looking at the problem backwards. The question is not, "can I find someone to whom my product is worth at least X" - that's flawed from the start.

The correct process is this:

1) Find a customer with a problem

2) Figure out how much its worth to the customer to have that problem solved ($X)

3) See if you can design and a product for less than $X

For example:

1) The local cab company wants to grow its business

2) It is currently making $300,000 per year. A 50% increase would be worth $150,000 (naively)

3) Could you create a white label Uber that would increase ridership by 50% for less than $150,000?

Thinking about it that way, there's no room for freemium. If you're thinking about freemium, you should find a new customer base or a new problem to solve.

(BTW, I love talking about pricing. Please shoot me an email any time if you'd like to talk more. I have a new SaaS that I would love feedback on, and I would be happy to offer my feedback on yours as well.)

[1] the proverbial you're (including me!)

With freemium, would the question be: How much, in real dollars, is it worth to my premium customers if I added a free tier?

It seems there are two books with the same title but different subtitles. Are you referring to "A Guide to Growing More Profitably" or " A Guide to Profitable Decision Making"?

Old like 1994 old? Thanks for the recommendation.

I have the 4th edition (2005 update), which is only $8 used on Amazon:

http://www.amazon.com/Strategy-Tactics-Pricing-Growing-Profi...

But honestly any edition is great - its sold as a textbook[1], so they seem to make periodic, cursory updates, but the substance remains unchanged. I suspect the 1994 edition is fantastic as well, and perhaps available in your local library.

I hope you like it, and get as much out of it as I have! And thank you for taking my recommendation, that made my day. :)

[1] That its a textbook is perhaps my favorite meta-lesson of the book itself. How do you charge $100 for a book? Call it a text book!

Thanks for the recommendation. I just grabbed myself a copy of the 2005 edition from Amazon!

Happy to hear that :) Going to get my copy as well.

Thanks for the book. Just bought the kindle version!

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