The Tl;Dr here is that the cost to them of operating the free tier is lower than what they estimate their Customer Acquisition Cost would be without a free tier, so the free tier generates better leads/conversions to their paid products at a lower cost than traditional sales and marketing.
replyAs long as these economics continue to hold they'd be stupid to discontinue the free tier.
Makes sense. Get tech people to adopt it, then push for it at work. It's brilliant and it will work. It's working for Cloudflare too.
replyMakes me wonder.
replySay 5% of the free tier users converts to a paying customer within 5 years. And user growth is constant. Then over time, you will get a much larger free tier user base, compared to your paying customers (in absolute numbers). At some point, it must become tempting to charge all free tier users a little bit to continue, because the group got so big, so there is a lot that can be earned there.
Is this wrong, or should we expect this?
Cloudflare still operates like this.
replyAnd they have become quite infamous for having aggressive sales tactics for anyone going over their internal metrics for the free tier (still under the public metrics for free).
replyBut it isn't 'economics' as there is no actual data or science here, just a wild guess about what customer acquisition might currently cost. All it takes to rug pull is some exec speculating that 'the economics' have changed.
replyAny mature SaaS company will have exact measurements of acquisition costs. This is advertising, sales staff, etc.
replyThis is one the the most fundamental components of SaaS accounting, it’s absolutely not a “wild guess”.
Acquisition cost can definitely be calculated. I'm pretty sure they know how many customers do convert into paying users from their free tier and how much does it cost to get them through other channels
reply> But it isn't 'economics' as there is no actual data or science here, just a wild guess
replyWelcome to economics.
All it takes is for the decision-maker who gets the credit for cutting costs by removing the free tier to be a different person from the one who gets the blame for higher customer acquisition costs. Not saying it'll happen, just that it being a bad move isn't a guarantee.
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