In the Subscription Economy, how do you know when it’s time to kill a product?
A couple of weeks ago I talked about product offerings with Zuora’s Amy Konary, and our research data on this topic is clear: revenues of higher-growth companies are typically concentrated in a more highly curated set of products. Less is more.
And now I have an excellent example of smart product editing from GitLab, a hugely popular developer platform that is growing like crazy. GitLab is a fascinating company — they were 100% remote well before the pandemic, and they have an interesting philosophy where everything they do they make public for all to see, even as they prepare to go public.
Last month, GitLab dropped its bronze and starter plans in favor of a three-tier subscription model for its SaaS and self-managed offerings: Free, Premium and Ultimate. (The old plan was free/core, Bronze/Starter, Silver/Premium and Gold/Ultimate.)
This was clearly not an easy decision to make. You don’t just casually push pricing changes on your customers. A lot can go wrong. Netflix famously blew it back in 2011, and Adobe went through all kinds of hell when they shifted to subscriptions.
So what prompted the move? Well, here I’d like to paraphrase my colleague Madhavan Ramanujam of Simon Kucher & Partners: If you have more than 70 percent of your subscribers in your basic package, then you may have a perfectly respectable entry-level service that will ultimately kill you.
Since GitLab got rid of a starter tier, I suspected that’s what was going on. So I reached out, and they were kind enough to get back to me. As Xiaohe Li, Principal Pricing Manager at GitLab, told me, “The Starter/Bronze tier was originally designed for a single team and did not have enterprise readiness features or support. However, we had some larger customers on the tier who weren’t seeing the value that they really needed. One of our more sophisticated customers told me directly that everyone should get on Premium at minimum.”
The result was a customer/product mismatch that was actually costing GitLab money. As founder and CEO Sid Sijbrandij explained to TechCrunch:
“The Bronze tier, we were selling at a loss. We were just losing money every time we sold it — just on hosting and support. To be a sustainable business, this was a move we had to make. It’s a big transition for our customers but we want to make sure we’re a sustainable company and we can keep investing.”
It was a smart move. Sure, the bronze plan only cost subscribers $4 a month, but that’s exactly the point: if you want to run a successful subscription business, you should be putting real resources and investments into all of your offerings, not just some of them. As the old saying goes, feed it or kill it.
As GitLab further explains on their blog:
“The Bronze/Starter tier does not meet the hurdle rate that GitLab expects from a tier and is limiting us from investing to improve GitLab for all customers. Ending availability of the Bronze/Starter tier will help us accelerate development on customers’ priority needs such as improving usability, availability, performance, and delivering enterprise-grade security and compliance.”
What’s a hurdle rate? The bare minimum rate of return on a project or investment required by a manager or investor. GitLab simply decided that the money it was losing on its bronze tier could be better applied to improving its overall product. It’s an important lesson for all of us.
But that’s not all GitLab gave us a master class on how to make a pricing change the right way. Here are four key lessons that I took away:
Don’t just drop the ax. Make a transition offer.
Not only can GitLab customers on the bronze plan choose to remain on the same tier until the end of their subscription period, but they can also renew at the current price for one additional year or upgrade to Premium at a significant discount. That means some current bronze customers won’t see any pricing changes for almost two years. That strikes me as a very generous offer.
Don’t push upsells. Highlight value across all your plans.
GitLab did something quite surprising in their pricing announcement: they encouraged current bronze users to investigate their free plan! As they note on their blog, “The Free tier of GitLab includes 89% of the features in Bronze/Starter, making it a great option to get started with DevOps. Last year alone, GitLab added over 450 new features to the Free Tier, and we never move open-source features to paid tiers.”
Why is GitLab happy to invest in its free program, but not its bronze plan? Probably because the free plan is robust enough that it does an excellent job of converting paid customers. The bronze plan just got stuck in the middle in terms of costs versus benefits.
Listen to your customers. Invite feedback.
As they explain in this video, before the launch Sid and Xiaohe solicited lots of feedback (on a confidential basis) from customers and internal team members alike. They also made sure to align on principles first. As Xiaohe explains, “We understood that some customers would not be ready to upgrade immediately. So before we decided on the transition plan, we aligned on a central transition principle: Make sure to offer a customer-friendly pricing policy that ensures a smooth transition experience for customers. As you can find in our handbook, collaboration is a key pricing philosophy that we follow.”
On launch day, GitLab invited its customers to offer feedback in a special section of their community forum. Unsurprisingly, some people weren’t very happy about the change. That’s perfectly okay — they were encouraged to share their thoughts, and the company respectfully replied when they thought they had relevant responses to offer.
Make sure you move towards pricing simplicity, not away from it.
GitLab’s new pricing page is simple, intuitive, and does an excellent job of communicating value:
Always remember: less is more.
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Disclosure: These opinions expressed are mine, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.