Why you should give away your features

Please 👏 stop 👏 gating features that make your customers successful

👋 Hi, I’m Kyle from OpenView and welcome to my newsletter, Growth Unhinged. Every other week I take a closer look at what drives a SaaS company’s growth. Expect deep dive takes on SaaS pricing, product-led growth, public company benchmarks, and much more.

I don’t know who needs to hear this, but your feature gating has probably gone too far.

Ask yourself: is your entry-level plan good enough for the customers you want to attract? There’s a very real possibility that you’re not giving *enough* away for free.

It’s time to stop gating the features that make your customers successful. Doing so artificially constrains your ability to embrace both product-led growth (PLG) and usage-based pricing (UBP). If nobody can get value out of your entry-level product, why offer it in the first place?

Let’s dive in before I get cancelled 🤣.

How we got here

As a recovering pricing consultant, I understand the logic behind charging more for your most premium, ROI-generating features. It helps you fund additional product development and pour more money into your sales and marketing efforts. It covers costs associated with distributing, supporting, and maintaining your product. And it’s (usually) a surefire route to faster revenue growth in the near-term.

You’ve probably seen this play out in your own startup. Let’s imagine you built a generous PLG product, which is loved by users and spreads like wildfire through word-of-mouth. But at some point you start to feel an intense external pressure to grow revenue even faster. Or perhaps your sellers keep telling you that they can’t hit quota because they’re losing Enterprise deals to the free product.

And so you do what anyone would do: you gate features.

It might be innocuous enough at first; after all, there’s still so much goodness for users to experience. But each feature gate brings the fresh dopamine of incremental revenue, leading to more and more gates each quarter. And with no VP of Free to push back (which probably *should* be a thing), you might just kill the very foundation of your long-term growth.

Why feature gates can constrain growth

Here’s the thing: what worked great for traditional subscription SaaS companies falls flat in the context of PLG and UBP, two of the leading trends in today’s most successful software companies.

The name of the game today is to deliver value before the paywall. And then to make it as frictionless as possible for the customer to grow with you.

Ungating access to your product doesn’t mean that you aren’t monetizing it. It means you put your best foot forward when customers are giving your product a try, then charge on the basis of product usage rather than feature access.

Miro - the visual collaboration platform - has a free edition that includes unlimited users as well as core integrations with tools like Zoom, Slack, Trello, Zapier, and Google Drive. Miro’s paywall is primarily based on usage (3 editable boards), creating a compelling monetization path.

I’m also not advising you to give your entire product away for free; you still need to give folks a reason to pay for your product.

But make sure to gate ‘superpowers’ that make customers even more successful or are only valid for select high value use cases, not core functionality that everyone needs. Discovering what these ‘superpowers’ are requires research, testing and iteration. More on that later.

Let’s walk through a few common pitfalls of feature gating.

Free offerings

Many Free offerings are so restrictive that your target customer dismisses it entirely. You lose the advantage of leveraging your product as a marketing channel, which is the key benefit of a free product.

What you're left with are hobbyists, non-serious users, and mom-and-pops who don't intend to pay for your service - but who still require support, hosting, and other costs to serve.

Many companies are coming to this same realization. Take a look at Okta, Mixpanel, and Chargebee, all of which have bucked the trend and made their free products far more generous than before.

• Okta increased the limits of their free developer plan by 15x, to 15k MAUs, along with offering better docs, new SDKs, and sample apps. Their goal appears to be courting developers who want to *really* try out the service before they buy.

• Mixpanel increased the data limits of their free plan by 100x. Their goal is to give early stage startups more runway before asking them to pay for Mixpanel’s product analytics.

• Chargebee doubled their free Launch plan to $100k in revenue for free. They're making it easier for startups to build on the platform, then monetize when the company can afford it.

The Verge @verge

LastPass’ free tier will become a lot less useful next month theverge.com/2021/2/16/2228…

SSO

We used to think of SSO as an enterprise-specific feature for customers with advanced compliance or security needs.

But SSO is no longer enough to justify a 2x or 3x jump into the Enterprise offering. Too many companies are missing out by not making SSO more accessible.

• Having customers adopt SSO is a good thing! It makes it easier for users to log in, no need to remember another password, and it streamlines the ability to add more users. Customers who've implemented SSO tend to be stickier with better retention rates.

• SSO is a "check the box" requirement for many orgs. If you don't offer it, you may not even get included in a customer's evaluation.

• Even small, growing businesses are adopting SSO as part of a Zero Trust security architecture. And modern identity providers like JumpCloud make implementing SSO both affordable and simple, increasing its adoption.

• The value of SSO doesn't justify price scaling exponentially, which is what happens when it's charged by the user and at 2x or 3x of the per-user price. Your user or buyer doesn't have a massive budget windfall just because their IT or Security team gives them certain requirements. Why should they be punished?

Bob Lord @boblord

Here is your periodic reminder that companies that charge luxury prices for security features like SSO help keep smaller companies and orgs below the security poverty line.

sso.taxThe SSO Wall of ShameA list of vendors that treat single sign-on as a luxury feature, not a core security requirement.

Engagement and collaboration

In a usage-based revenue model, you naturally get paid more as your customers deepen their product usage. This often happens organically as your customers discover new use cases or bring in other teams.

It’s in your best interest to drive as much product engagement and collaboration as possible since it’ll ultimately benefit you in the long-run. Don’t put artificial gates up that will hold a customer back.

Integrations with tools like Slack or Salesforce are classic examples. These features create long-term value in the form of greater expansion revenue and reduced churn, and are items you want the majority of your customers to use. Slack integrations in particular help your users promote the product to other users in their organization.

How Algolia ditched feature gates to launch their most customer friendly pricing ever

Algolia, the site search and discovery company founded in 2012 and now valued at $2.25 billion, came to this conclusion through a course correction.

I had a chance to sit down with Julien Lemoine (CTO & Co-Founder) and Gaëten Gachet (Chief Strategy Officer) to learn more about Algolia’s pricing evolution from the early days until today. Fun fact: this is actually version 8 of Algolia’s pricing model.

You can read the full Algolia story here - I highly recommend it.

Algolia had a product-led strategy from the beginning, initially targeting developers who became champions for deploying Algolia at companies large and small.

Starting in 2017, the company had adopted an extreme feature gating approach whereby their most innovative features were reserved only for enterprise plans. This helped sellers close larger and larger deals, but had the inverse effect on Algolia’s future prospects. PLG leads and community goodwill suffered since developers couldn’t get their hands on what made Algolia special.

Algolia’s old pricing (with feature gating)

And so in 2020 the company made a big bet on what it calls its most customer-friendly pricing model ever. Algolia identified the features that made sense for nearly all its customers - such as A/B testing and query suggestions - and rolled them into the free and self-service, pay-as-you-go offerings. Developers no longer need to pay a big subscription fee to access these; they can start for as little as $1 per 1,000 requests/month.

Algolia’s new usage-based pricing model

Algolia does still have additional paid capabilities that are available on a subscription basis. These are capabilities that only make sense for select enterprise customers with special requirements. Enterprise subscription capabilities include things like a 99.999% uptime guarantee, premium support, extended data retention up to 365 days, and HIPAA compliance - not your run-of-the-mill product features.

The customer-friendly pricing shift has clearly paid off for Algolia. They can now have their cake (attract lots of PLG leads who successfully adopt the product via self-service) and eat it too (monetize the highest value customers who ramp up their usage). Here’s what Julien and Gaëten had to say.

“The percentage of existing customers that moved by choice to the new pricing was a key metric of success for this project – with a significant percentage moving immediately. We didn’t force them—our customers were clearly seeing the benefit of a simple, usage-based pricing model tightly aligned to the value they attained.” - Julien Lemoine & Gaëten Gachet at Algolia (via the OpenView blog)

What to do next

Every software company should do their homework to understand the value of their specific product features: who values it, how much do they value it, and why.

You can look at your product analytics data for clues about what folks are actually doing inside the product. But there’s no substitute for talking to your users through both 1:1 interviews and online surveys.

One approach is to break your product down into a list of capabilities that could plausibly be gated. This list can include roadmap items as well as existing features and service offerings such as SLAs or priority support. Ask users to tell you whether each capability is a must have, nice to have, or something they don’t need. Each package should include all of the must haves and key nice to haves. Things that most users say they don’t need yet some sophisticated folks find to be extremely valuable are great candidates for higher tier editions.

While the best companies let user value perception be the primary guide for their decision making, you should also consider other qualitative factors. For instance, does the feature need to be demonstrated or implemented by an expert before someone might see value? Alternatively, is there a tangible cost to deliver the feature, which may make it unsustainable to offer to everyone? Or does the feature help with either data collection or product virality, which supports indirect monetization?

When in doubt, err on the side of ungating access to your product if you plan to pursue a PLG or UBP strategy. It’ll help you drive more adoption and become ubiquitous with customers, and you can rest easy knowing that this goodwill will generate higher CLTV in time.

The success of your customers is the foundation for your own success.