antonybrydon

The implication of Jott's discontinued free service for your freemium service

Jott announced that they are discontinuing their free service effective February 2, citing a terrible ad market that is insufficient to support the free paid product. Customers will need to upgrade to paid plans at $3.95 per month or $12.95 per month to keep using the free service.

It's a surprising move, because the company says 30% of free users ultimately upgrade to paid versions. It's a high upgrade percentage, and seems at first blush like a great example of the freemium model at work.

It's an unsurprising move, because the cost of supporting these free users with a service that uses human transcription has to be very expensive, even if some speech to text automation is used for preprocessing. If the cost to support a user is even a dollars a month, it's easy to see to company going further into the red as the model (and free base) scales. The profits off the paid base are outweighed by the costs of supporting the free base.

It seems less likely that the struggling ad market affected the decision, because the most that advertising could contribute per user per month is a fraction of a dollar. Hit a user once per day at a $10 CPM and you're making only $0.30 per user per month. The ability to offset the human transcription costs with advertising seems challenging in good and bad ad markets alike.

Let's suppose that the entire ad market evaporated and Jott lost all advertising revenue. Since roughly 30% of the base is paid, Jott could offset that loss by increasing the profit on an average paid subscriber by $1 per month. They could do this by introducing new features, introducing a new subscription level, or optimizing price for profit - and maintain a free service and a freemium model that seems to be working well.

Since they didn't choose this path, and chose instead to sacrifice the freemium model, I suspect the costs of the free service are more significant than the reference to the ad model suggests and the profits on the paid service aren't near what's needed to offset the marketing expense. [Note: I've got zero insight into the actual economics of Jott's model - if my calculus is bad, I'd be grateful for a correction.]

A Pricing Bill of Rights

Overview
Retailers could improve consumer comfort with dynamic pricing practices by adopting and promoting a Pricing Bill of Rights that offered consumers visibility and rights around how their products are priced.

A long car ride and an passionate debate
I was crammed in a car to Tahoe last week when the conversation turned to price optimization (clearly, it was a long ride), the technique that companies like airlines, hotels and rental car companies use to change prices to optimize profit and revenue. My skiing companions were both in technology: one was an outside sales exec, and the other was an senior engineer.

Consumer unrest
A few things about the conversation surprised me. First, the level of familiarity was surprising for a niche science. Everyone had a story to tell: how Dell was offering different prices to people visiting their website via different channels, how United was offering different prices for the same seats at the same time, how Amazon changed the prices according to the customer's profile. Second, while I was not surprised by the generally negative opinion about dynamic pricing, I was surprise by the length and passion of the debate. It was an emotional issue.