[anigbrowl]

(from a thread yesterday about when Freemium fails)

One of the problems with the freemium model is that many people sometimes seem to pick a revenue target arbitrarily and then backfill their projections with the necessary conversion rate. Obviously, few firms or entrepreneurs want to expose their pricing models publicly in forums like HN, but startups need to be able to answer the question of what marginal utility they provide to their potential customers. The 'less than a cup of coffee!' model of app pricing, for example, assumes that since coffee is such a small thing users will be just as willing to throw down $3 for an app. But the coffee has physical, psychological and social value for the consumer that pays off on a predictable time horizon - and pays off not just the $3, but the time spent standing in line or buying and brewing your own coffee. Consumer preferences in for this commodity are sufficiently complex to support a large and extremely competitive market. If it was 'just coffee' then it would cost the same everywhere and vendors would be limited to normal rather than economic profits. A better approach for vendors might be to assume your target consumer does not have endless disposable income. What value does your product or service provide that would make a coffee consumer go without their favorite beverage for a day? Or if not coffee, a competitor's offering or some other part of the consumer's status quo? How does your offering compare to the composite bundle?