Understanding how a product or service offering creates differentiated value for the customer is the foundation of value-based pricing. Prices should align with the value the customer receives, thus ensuring the seller is maximizing returns from the customers and target the customers that derive the most value from the offering. These are the customers that will be happiest and most successful, the kind of customer you want to build a business on. For pricing to be effective, it should track the value metric. This is the unit by which the product or service offering is consumed that best reflects how the customer gets value.
The freemium revenue model is the go-to-market strategy for many web-based software solutions. Unfortunately, it can turn into a costly trap for the service provider. We saw this happen in June of this year with the Photobucket freemium to fee-based service migration debacle. Let's delve into what went wrong with Photobucket's fee introduction and contrast this with the lessons to be learned from Meetup's successful migration to a paid subscription model.