Framing Effects of Platforms on Price: Pricing Slack Apps (Part I)

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Platform business models continue to roll across the business landscape, transforming whole industries and rewriting basic business assumptions. The popular examples are companies in the ‘sharing economy’ like Uber and AirBnB. But the transformation is equally powerful in B2B software.

For B2B it is the platform that dominates the ecosystem. With many people suffering from ‘app exhaustion’ (Do I really have time and attention for another piece of software?) and companies trying to rationalize the maze of web services they have subscribed to platforms are on the rise again. They are becoming the best, and in some cases the only way, to get to industry buyers and they are critical to driving user engagement. Salesforce and its App Exchange are the classic example, but Slack is rapidly emerging as one of the best channels into the enterprise, especially for applications that need people to communicate with each other. Slack provides a powerful case study for how people need to think about pricing software that is delivered with and through software platforms like Salesforce and Slack.

Slack continues to roll across the collaboration landscape. How many Slacks are you on? Currently I have to monitor four and am actively engaged on two. Inside each of these there are an average of seven channels. That means following about 28 channels. And most of these channels are populated by at least one Slack bot.

What is a Slack bot? It is an application that communicates with you through Slack and leverages Slack for key elements of the user interface. Conversational robots are an example. These bots listens in on a Slack channel and inject comments when relevant. They ask and answer questions and provide access to value-added services. It is easy to recognize the Slack bots in your channel.

While they listen, some Slack bots are also collecting data and putting it into data lakes for analysis. With the amount of information flowing through Slack and the context supplied by conversations it is becoming a rich source of data for machine learning systems.

How many of these bots are there? It is difficult to come up with an exact account as teams can have private bots that are not visible to anyone other than themselves and Slack. But in this post I am more interested in the bots that any of us can add to our own Slack channels. You can find these on the Slack App Directory where Bots get their own page. A quick count gives more than 1,000 Bots from everyone from the Harvard Business Review to well-known web apps like Quip (a very useful collaborative authoring system) and interesting new comers like Leo. Of course there are some bots that are there just for the fun of it. Check out Autocomplete (that guessing Google autocompletes has become a game says something about how much we rely on search). There are even bots that help you script other bots, see Hubot.

I have even caught the bot bug myself and am working with a small team to build a bot that will help you to learn about pricing and will answer your pricing questions (bots are likely to be an important mode of e-Learning.)

But all this effort has to be sustained, which means bot creators looking to grow businesses on top of Slack must learn how to accurately set prices. How will companies make money from bots generally, and Slack bots in particular?

There seem to be four basic models:

  1. Charge for the bot directly (Leo from Officevibe)
  2. Use the bot to add value to a larger application and use the bots popularity to drive adoption and engagement (Quip)
  3. Collect data to monetize (it is hard to know who is doing this)
  4. Have the bot function as an ad channel (have not seen this but you know it will come in one form or another…perhaps as a form of ‘product placement’)

In this post I will focus on the first of these – charging for your bot directly – as it raises some interesting pricing issues.

Most bots are being priced between $2 and $4 per user. Leo for example is $4 per person per month. Why is this? Well, Slack is priced between $6.67 and $12.50 per month (at time of writing). Bot developers I have been talking with say “How can we charge as much as Slack when this is the application we are building on?” This is a rather pernicious example of ‘price framing’ and it is the wrong way to think.

We have seen this before with CRMs especially Salesfoce.com which has one of the best developed application ecosystems. A few years ago people were reluctant to charge more than about 20% of the cost of the CRM for a CRM add on. As one marketing manager said to me “You can’t charge more for the tires than you do for the car.”

Why is this wrong? Because it ignores pricing basics.

  1. Price is based on the value you provide to a customer
  2. What matters is the differentiated value, the value you provide that the customer cannot get from the next best competitive alternative

If your bot is creating value and there is no other way to get that value then price appropriately.

Framing is important in pricing. Buyers generally have a slot in their minds for about how much something costs. You know what to expect to pay for a cup of coffee or a compact car. As a marketer it is your job to control the framing.

How should we frame the relationship between bots and Slack (or Facebook, or any other communication platform)? One approach is to think of the bot as an add on that enhances the core offering be that the CRM or the collaboration platform. With this framing the buyer expects the bot to cost only 20-30% of the host application.

What happens if we try a different framing? Think of the collaboration platform as a communication channel, a commodity really, and the content communicated on the channel as the source of value. In this case the right bot could be many times more valuable than the channel that carries it. Imagine a bot that helps you build the skills you need to get a job. Is that worth more than $6 per month? How about a bot that finds the very best RFPs for you to respond to, gives you background on the opportunity and coaches you on how to craft a successful response?

If you are building a bot, and want to take it to market at a reasonable price, think of Slack as a communication or delivery channel. Collaboration channels will become a commodity service and you want to be riding on top of the channel and not be trapped under it.

It means no disrespect to Slack to position it as a commodity. Commodities are extremely important things. They are commodities because we all use them and use them without thinking about them very much. It is a real achievement for a category of software to become a commodity, and it opens up all sorts of new business models. Email, spreadsheets, document processing, relational databases are all commodities. Customer Relationship Management, Learning Management, Human Resources Information Systems are also on the brink of becoming commodities. Collaboration, digital asset management and project management software is on the way as well.

In Part 2 of Pricing Slack Apps we will look at some specific pricing strategies that can be pursued.

I would like to thank Boris Mann for provoking me to write this piece. Boris is one of the smartest people I know working at the intersection of business and technology. You can read his own thoughts here.

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  • Steven, you are dead-on by advising not to anchoring the value of apps/bots on top of platforms.

    That said, this anchoring is real. We, at Pathful, were building into Marketo and as a result, we were then being compared to them. We charged between $500-2000 per month which was roughly half to 1/10th of the cost of Marketo and some would say “how come you charge so much relative to Marketo?”

    Never mind that we improved revenue and provided insights that they couldn’t get on their own. Or that Marketo usually requires 1-2 FTEs to manage at $80-100k/year. Marketo had achieved something special: a loyal, valued base who saw their app as critical to their workflow.

    So this framing is also driven by customer perception which then needs to be managed. And even this isn’t as simple as it seems. As you point out: does the customer see Salesforce or Slack as the main value even though they are essentially commodities for their core functions?

    There is also a second order effect here that both Slack and Salesforce understand: by having all relevant products integrated, they become the default choice for Enterprise. I would say that Salesforce has clearly achieved this: when you get to a certain scale either your VP of Sales and/or Marketing will insist on Salesforce because they need it to run their business. Slack is hoping to do this and has a good start. It’s not obvious that that they have this kind of market power in the Enterprise.

    • One thing that may happen here is that companies that want to base a very valuable bot (to the customer that is) on the Slack platform will offer to cover the cost of Slack as part of its own price, thus Slack would be bundled into the bot rather than the other way around!