Say you build an online service that charges a monthly subscription. Part of the subscription pays for the "service", the other part is for the maintenance and updates.
Implicit in this idea of software "on-demand", how do you charge for new features (selling new stuff to the current base) when the expectation is that their ongoing fees are paying for the updates?
Yes, you can say that if the new features are important enough, then they should be considered "upgrades", but that was a distinction that worked well in the install-software world, but doesn't make sense in an on-demand world.
Yes, you could also offer tiered pricing for having access to different parts of the service, but that offers 2 issues:
1. increased complexity of tracking and charging for all "add-ons"
2. it inhibits your ability to create new services that might use parts of multiple add-ons, which now means those service core elements have to be abstracted to a new class of service to make sure the clients using the new services have access to the required components
This is something that we have been struggling with for a while and don't have an easy answer. I would like to get your take on how we might be able to take your advice and make it work.
Thanks.
Paul
In the past few days a couple of writers—Gary Hamel on Google in the Wall Street Journal and Om Malik regarding EBay—have made clear just how corrosive the Web 2.0 bubble mentality and the Wall Street mantra of “Growth at all Costs” has become. I feel compelled to make the point that I’ve made several times before about both companies here, here, and here: First, you have to take care of your existing business, and keep your customers happy, before heading off for parts unknown.
This simple truism seems to have escaped some of the most respected commentators in the digital world, maybe because it is so old fashioned. New isn’t better unless it improves the old. Shoring up the base product, then selling more services to happy existing customers, is by far the easiest way to grow any business. Setting out across the landscape for new territories to conquer is much more expensive, much more resource-intensive, and much less likely to succeed. So why is most of the digerati so completely enamored of it? Because it is much sexier and seductive for big thinkers to come up with new ideas, rather than incrementally improve the old ones.
First Gary Hamel, the silk stocking “management guru” who was one of Enron’s big supporters, wrote an hallucinatory piece of fluff for the Wall Street Journal congratulating Google on reinventing itself at least six times in the past six years. Paul Kedrosky has already done a great job of skewering this effort. The incredible thing about the editorial (hmmm…puff piece) was that no where in the copy does the guy even mention “search” technology. As I’ve said before, and I’ll say again: If Google doesn’t improve the results it is delivering in simple search to its existing customers, and innovate in the very essence of search, it is going to lose its way chasing after all these new ideas.
Secondly, Om Malik, a former colleague and a very smart guy presents his prescriptions for EBay. (He also comments on Hamel’s story here BTW.) And while I’m glad to see that he is trying to think outside the box for the online flea marketer, he also misses the point: EBay is in trouble because it is searching for new things to do instead of taking care of its customers. The problems at EBay are internal. Until the company builds better oversight, enhances fraud control, offers an honest feedback method, and elevates the buyers to a position at least equal to the “power” sellers, it is going to continue to struggle. While it may be fun to brainstorm on podcast about where the company could go—and as an aside, PayPal is already acting like a bank if my experience of how long they used my money in the float is any indication—what EBay really needs to do is to get its existing house in order.
This kind of growth at all costs thinking was what punctured the first Internet bubble. Unless we start demanding that this version’s businesses create and maintain sustainable core operations, the whole thing is going to burst again. Add soaring oil prices, a weakening real estate market, a dependence on cheap overseas labor for all of our manufacturing, and rising interest rates, and the American economy could easily hiccough. This second time around, those of us who lead investors down the garden path into the fantasy Tech Economy aren’t going to be forgiven so easily.
