Pricing Page Teardown - Is Zoom becoming too general?
Zoom has become a household term since the COVID-19 pandemic locked everyone into a work- from-home environment. But with a ton of competition in the video conferencing space, does Zoom have what it takes to remain the juggernaut in the industry?
This episode might reference ProfitWell and ProfitWell Recur. Some information may be out of date.
Zoom
What would a video conferencing product need to make you feel like distance isn’t coming between you and a loved one or colleague?
This is the central question that Zoom’s founder and CEO Eric Yuan daydreamed about during a much hated, 10-hour train ride he would take from where he attended university to go see his girlfriend, now wife. He would get so exhausted that he’d fall asleep standing—yea, did we mention he needed to stand the whole time?
To make matters even worse, Yuan was only able to see his girlfriend twice per year, so it’s pretty understandable that he’d imagine a device where he could simply push a button and be able to see and talk to her, instantly.
Little did he know that these daydreams would lead to a multi-billion dollar company that not only took the world of business by storm, but also entered public consciousness and has even become a verb we use on a daily basis.
Zoom's pricing page
The freemium model
Freemium done right means providing value with the right triggers. Zoom's freemium model was successful because they gave potential users full access to the product, but limited meeting length to 40 minutes. Slack also uses a similar strategy by limiting the ability to search back 10,000 messages. These limitations are not a big deal until you reach a certain number of users, and then the cost to upgrade becomes significant. Zoom's upgrade pricing is based on the number of users and forces businesses to buy a minimum of 10 seats for access to real business features.
Push pricing done right
Zoom and Slack have different approaches to SaaS pricing. Slack uses pull pricing, where users upgrade when they naturally want to and are fine paying more. In contrast, Salesforce uses push pricing, where users are forced to upgrade to access certain features. Push pricing can result in users paying for features they don't use, while pull pricing aligns pricing with user needs. However, push pricing was effective in the past when there were fewer features available. Nowadays, more companies are adopting pull pricing. Zoom's pricing structure requires a minimum of 10 users for certain features, but this aligns with the willingness to pay for those features. This approach avoids users paying for unnecessary features, as can happen with push pricing.
Looking at the relative preference graph below, we can see that users who need two to 10 users prefer meetings over 40 minutes. However, for those who need more than 100 users, there is a lot of dissonance as they need more than 40 minutes. The other features hover around an indifference point. This dissonance occurs for two reasons. Firstly, the group of more than 100 users wants every feature, typical on the enterprise side. Secondly, the group of two to 10 users can't decide on which other feature they really want.
As customers upgrade, they are willing to pay more for the features they want. To ensure success, identify which features are important to each customer segment and offer them as differentiated tiers, rather than add-ons. As we see in the graph above, Zoom really knows that meeting length is crucial to their customers and that they are willing to pay more for it. If you create tiers with features that don't justify an upgrade, you risk losing customers. Don't stick to old-school thinking when monetizing software.
Annual Plans
To increase lifetime value (LTV) and lower churn, it's important to emphasize annual plans. Zoom's strategy involves promoting their annual upgrade to potential buyers. When you go to purchase, the annual plan is the most prominent option, offering a $400 discount compared to the monthly plan. This intentional pricing strategy emphasizes the dollar savings rather than the percentage discount, which tends to have a bigger impact on customers.
We studied how people choose annual plans based on different types of offers. Offering a percentage discount, such as 18% or 20%, is effective. On average, 11% of people selected the annual plan with this type of offer. However, offering two months or a specific dollar amount off increases signups to nearly 50%. It's important to not only encourage annual plan signups at initial signup, but also offer additional upgrade incentives during the first two to ten months of their subscription.
Sometimes when you're just starting the relationship, people aren't ready to go into an annual commitment. We consistently found those on annual plans typically churn at about a 30% lower the rate of those on monthly plans. So you want to make sure you're optimizing these annuals, both for lifetime value, as well as for lower churn. And this is something that Zoom does really, really well.
Add-ons
Add-ons can make or break B2B SaaS growth. For instance, Zoom offers various add-ons such as Zoom phone, Zoom rooms, and the H323 room connector (which costs an additional $50 per month per port).
Here is a value matrix we created by collecting data from a group and comparing feature preferences. We plotted the preferences on the horizontal axis, with more valued features on the right and less valued features on the left. We also collected willingness to pay for the overall product and plotted that based on the users' number one feature preference on the Y axis. Analyzing data in this manner helps us determine which features are differentiated add-ons, core, or commoditized for each segment.
To differentiate your features, consider bundling them within the product or making them add-ons. Remove features that are used by less than 40% of users within a tier. Sell your product to everyone. Zoom has broken off certain features as add-ons because they're not necessary for everyone. Businesses often bundle too many features when they should be selling them as add-ons within their product. Understand where the actual value in your features lies.
Zoom's success is a result of many factors that work together to create a great product. They've used pricing strategies effectively to drive customer satisfaction and retention. While they have faced challenges, they've been able to address them and continue to grow. By focusing on the customer experience and differentiating their product, they've been able to maintain their position as a market leader.
Looking ahead, Zoom will need to continue to innovate and stay ahead of the competition. They will need to address potential privacy and security issues and continue to improve their product to meet the evolving needs of their customers. As video conferencing becomes more commoditized, they will need to find new ways to differentiate themselves and provide value to their customers. By staying focused on their core values and continuing to put their customers first, Zoom can continue to be successful in the years ahead.
Looking for help with your pricing?
Price Intelligently by Paddle is revolutionizing how SaaS and subscription companies price and package their products and services. Founded in 2012, we believe in value-based pricing rooted in first-party research to inform your monetization strategies. We combine expertise and data to solve your unique pricing challenges and catapult growth.