August 30, 2013
SaaS startups are hard – beyond all he difficulties of getting to scale, getting attention in a busy marketplace and deciding on a partnership strategy, there is the important issue of revenue to think about. One of the most often used ways of building a customer base for a fledgling SaaS company has been through using freemium – offering a limited application for free in the hope that users will sign up, gain the value from the product and decide to move to a paid plan
It’s a great theory, but sometimes the realities of life as a SaaS company get in the way. A case in point is Swiftype, a startup that is in a really interesting space providing a search service for websites or applications – essentially the service creates a custom search engine for a specific site or application, which then provides a whole heap of functionality of use to site owners – search analytics, auto complete and the ability for site owners to fine-tune the results that site users obtain. All good stuff, I wanted to see how the product work so signed up for their free plan – the plan gives site owners the ability to index one site with up to 1000 documents. Unlike the paid plans, with the free plan Swiftype only recrawls the site on a weekly basis and only holds 30 days worth of analytics.
I signed up to the free plan and was aware that my site had more than the 1000 document limit – I was interested to see how Swiftype would handle this fact. They company had a policy of letting users exceed their document limitations – so the service worked fine, despite my higher number of posts. Then the other day I received a personal email from the company advising me that a change was coming for beta users, some additional functions would be added to the premium plans but the company would also be enforcing the 1000 document limit – customers with more than 1000 documents on a site would have to sign up for the lowest Swiftype paid plan – a $44/month option.
No don’t get me wrong, I am entirely aware that I was the one who signed up to a service and knowingly exceeded the limitations of that service. But the interesting thing here is that Swiftype changes their policy to actively enforce the limitations. In essence they changed their freemium model (the implied one, if not the stated one) which results in an enforced move to a paid plan. I reached out to Swiftype to question them around this and offered my sympathy saying that t’s a difficult path to navigate and companies have to be very careful for it to not seem like a bait and switch.
To their credit, Swiftype responded saying that;
(sic) your right – it is a difficult spot to navigate… I apologize if it seems like a bait and switch – it was never our intention.
Now I’m not suggesting that this is bait and switch – but I do wonder if Swiftype weren’t wrong in not enforcing the limitations from the outset. Customer expectation is an immensely powerful thing, especially so in SaaS products that have a very easy opt-out mechanism. By not enforcing the limitations around their freemium option, Swiftype created an expectation which, unrealistic as it may have been, becomes the default for customers.
The takeaway here for other SaaS vendors is to think long and hard about their freemium strategy – it might just come back to haunt you!