How to monetise your product – Christina Lucey
How to create the business models that result in profits.
Apps for work specialist Christina Lucey joined Leading the Product in 2016 to share her insights into monetisation strategies for products and startups.
With an extensive career, Christina has experience creating apps for Microsoft, Yammer and Blackberry.
“Product should always be working on something that moves one of three needles forwards,” explains Christina, “Those being growth, engagement and monetisation. Each of these should be able to improve without negatively affecting the others.”
“Reid Hoffman from LinkedIn shared that distribution is more important than the product itself. If you can’t sell a product, you don’t have a great product”, Christina reminds the audience.
Monetising your startup
According to Christina, startups have a lot to figure out, and quickly. Sharing a slide with the audience at Leading The Product, the product expert shared that from over 1000 startups, only 1 – 3 go on to ever be a mature company worth in excess of $100 million.
“The advantage of being a startup”, explains Christina, “is that being forced to be nimble and agile can result in your becoming a disruptor.” However, any startup only has finite resources, which is why startups have to figure out how to monetise quickly.
Finding a startup business model
“A business model describes the rationale of how and organisation creates, delivers and captures value, in economic, social, cultural or other contexts.” explains Christina.
When working at software platform Zinc, Christina and her colleagues encountered a number of challenges when establishing their monetisation strategy, which she explained in her Leading the Product 2016 presentation.
The freemium model
Zinc used the freemium model, where part of the product is free and then premium features incur a cost.
“To monetise users, you have to acquire them, activate them, retain them and then convert them to paying customers,” explains Christina. “With Zinc, we began with a clear delineation between free and paid features, with a link within setting that encouraged users to ‘Try Premium’”.
Unfortunately, not many people clicked on that link. And a number of those who did only did to see what premium was – they didn’t go on to subscribe. The lesson from this was that ‘build it and they will convert’ was not enough. Many people didn’t even notice the premium feature. Others didn’t realise the value of it.
Christina’s takeaways – make sure users understand the value of premium. Prime them and assert the value. Think about discovery – with the eventual goal to convert people make sure they discover premium features as part of their journey around your platform.
To build paid members, Zinc set a goal of growing to as many users as possible, with the hypothesis that a company that is already using your product is more likely to buy it.
Over the 16 months that followed, Zinc grew 30 times per week. Messages went from 15,000 to 6 million and were people were using Zinc on average 3.8 days per week.
Behind the scenes the team changed the acquisition funnel. Switching it from Acquisition / Activation / Retention / Referral / Revenue to Acquisition / Referral / Activation / Retention by having people invite others before they had finished signing up.
Having achieved growth, the new challenge was converting them to paid users. “This became like mining for gold.” says Christina. They tried direct messaging new users, which was expensive with no ROI.
A big lesson learned was that often the user wasn’t the buyer. The user was a staff member. The buyer was in IT. They weren’t even aware of this unsanctioned tool – sometimes it even got blocked as a result of the IT manager finding out it was being used – the opposite of the end goal for Zinc!
A key lesson : Know your buyer – they may not be your user.
Zinc’s next hypothesis was that if a free user uses a product a lot, they will be more likely to pay to use it. They needed to make the buyer to look good as well, considering that it was a different person to the users of the platform.
The next step for Zinc was paywalls. This included limiting attachments and capping voice and video call minutes.
The first outcome of the introduction of paywalls was decreased retention, users just stopped engaging with Zinc once they hit the paywall.While another group of users ignored the paywalls, preferring to stay within the parameters of the free model.
The lesson in this instance was that the limits you place on a product need to have value. In limiting what people could do, Zinc was forcing them onto a different path.
The advantage of sunk costs
Christina explains the concept of ‘sunk costs’. “Think about a cheap printer. The cost to the consumer is minimal, but once they have committed to owning the machine, they must also regularly pay for the ink cartridges. This makes them less likely to switch brands and forces them to be loyal”.
Christina and her team established that the more you use something, the harder it is to switch. “Set the user up for eventual conversion by driving them to actions that make switching difficult from early on.”
Which monetisation model is best?
How do you know if you’re making the right choice for your business model? The answer from Christina is that you don’t.
“Product is all about taking calculated risks. If you’re operating in a known quantity or space, what you’re doing is optimising. Sometimes you need to optimise, other times it’s up to you to take a risk.”
Lessons from Christina:
- Help your sales team and do what you can to keep customer acquisition costs low.
- Differentiate the buyer from the user – they may not be the same people. Think about how the product makes the buyer look good.
- Build viral loops into your product to help grow your user base.
- Use sunk costs as powerful levers to help people from switching.
- Prime the buyer for conversion right from the start of their user experience.
About Christina Lucey
Christina has 10 years of experience building communication apps for work at Yammer, Microsoft, and BlackBerry. Hailing from the Great White North, she graduated from the University of Waterloo with a Bachelor of Computer Science.