(Editor’s note: Answers OnStartups is a Q&A site for entrepreneurs founded and moderated by Dharmesh Shah and Jason Cohen. This semimonthly feature highlights popular discussion topics on the forum and gives a sampling of answers from site members.)
You’re heard of “fremium” pricing models for web-based applications, but what about desktop applications? Even worse: What about desktop applications that retail at $1,000 or more?
Long before the fremium fad swept the browser-based world, traditional desktop software makers had two primary ways to provide a low-friction way for customers to subtly get addicted to their product:
Free Trial — a timed-limited trial in which you can use the entire product for only a few weeks, or a feature-limited trial in which you can use a subset of the software, just enough to see how it works but not do anything vital, e.g. you can’t save, you can’t print, or you can’t export without a hideous watermark.
Lite Version — a lower-cost edition of the software where many features are missing or hobbled. This is fully-functional software which many people can use as-is.
Which path is wisest? Ferrua Mavituna raised the question recently on Answers OnStartups.
The answer is more complicated than it may seem – and it often depends on the type of customers you’re seeking and the nature of your software. The debate (which is ongoing) has been intense – and brought out proponents of both sides of the issue.
Here’s a summary of some of the advice he got:
- A “Lite” version can cannibalize sales. Customers who would have paid for the $1,000 version might be satisfied with the $500 – you’ve lost $500 for nothing.
- A “Lite” version can increase sales. Many people will balk at $1,000 but will sniff around a cheaper version. If you make those sales, that’s revenue you wouldn’t have had, and since the Lite version is simpler, tech support is cheaper, which means it might be just as profitable.
- A “Lite” version can help manage competition. If you’re expensive, you probably have a lot of cheaper competition. Sure they do less or it’s lower quality, but money is money. This way you can still compete if price is the primary factor for the customer. Better they buy a cheaper version from you than buy anything from anyone else.
- A “Lite” version can cheapen your image. If you want to command a high price tag, you need to exude “luxury and value ” everywhere from the website design to customer support to price. Under-cutting yourself just makes you look like “Shareware with a stretch.”
- A “Lite” version can segment the market. Often there are several distinct market segments that don’t require the same features and cannot bear the same price tag. For example, photo-editing software might have an inexpensive, simple version so that amateur photographers can do common tasks like cropping and red-eye-removal, but also have an expensive edition for things like creating bound photo albums or DVD slideshows – supporting services professional photographers offer their clients.
- People steal software, so Lite versions are unnecessary. If your software is over $1,000, someone is going to hack it and post a version that doesn’t require a license code. People who really don’t want to pay for software aren’t going to pay you anyway. If you embrace that fact, you’ll find Lite versions aren’t worth the effort. Better to make a good profit off of honest people and have the pirates at least be using your software instead of a competitor’s.
- Free to read, costs to write. This is the Adobe PDF model: It’s free for anyone to read, search, print, and share documents, but you have to pay Adobe if you want to author PDFs. This is a nice way to have a “Lite” version to increase usefulness and spread the word, but still make money on a smaller subset of users.
- You can combine the two ideas. Start with a time-limited trial of the complete product so customers are impressed and hooked. After the trial expires, revert to a hobbled “Lite” version that continues to function, but which misses vital features. Because they can still try to use the product, but fail, they’ll want to purchase.
- You can change your mind. Start with the Pro/Lite combo. At the early stage of your company you want new customers above all else – not unprofitably so, but almost at any cost. Use the two tiers to test price levels and which features people will really pay for. Eventually you can elect to drop the Lite version; just offer free or inexpensive upgrades for your existing Lite users and move on.