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.”