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Ask YC: The Carrot or the Stick?

11 points by Locke ↗ HN
I'm getting close to a major update to my website. Right now I think it's okay or maybe good, but after the update I think it will be a great site. The kind that I hope people will pay for. I'm planning on introducing a paid membership, and as such, I need to figure out how to get my users to switch from free acounts to paid accounts.

I've been classifying my ideas as "carrots" or "sticks". By my definition, an effective stick should force a large percentage of users to pay or leave. For example, a 30-day free account. That's a very effective stick, at the end of 30 days every user will either pay or leave.

By contrast, an effective carrot will induce a smaller percentage of users to pay while not forcing any (or few) to leave. For example, I may be very happy with my free account, but when I see that I can have access to really cool bonus feature X if I sign-up for a paid membership, I just can't resist.

The trick is that the carrot can't be core to the application. If a free account is crippled because really important feature Y is only available to paying members, you're looking at a pay or leave situation and, thus, a stick.

If your users don't interact with each other -- that is, there's no network effect -- I think a strong stick is obviously best. There's no benefit to keeping users around in free accounts. Best for them to convert to a paid account or leave. But, if there is a network effect, then, I think, it becomes much more complicated. Should only carrots be used? Or, perhaps a gentle stick?

I'd love to hear examples of effective carrots or sticks. What works? What doesn't? Is it better to be nice and use only carrots? Or, is it better to force the issue with a stick?

21 comments

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xenoterracide
can you explain your site more? I also have to say I like githubs pay for privacy or space.
Locke
My site is a turn-based games site. There are many others like it, most either charge for memberships or are free, advertising-based sites. Some seem to be very successful, some I would classify more as hobby sites.

A few of my current ideas are:

  * Vacation days (a very standard feature... they extend the time limit on your games so you don't while you're away on vacation) (carrot)
  * Advertising free (I don't have advertising now, so I'd have to introduce it for the free accounts) (carrot or stick?)
  * 30-day free membership (stick -- don't like this idea)
  * Limit on the number of simultaneous games a user can have (stick -- don't *really* like this idea, either)
  * Prize tournaments for members only (need to research this idea... not sure I like it) (carrot)
And I'm considering a bunch of other minor perks (customize your profile, change colors, etc...) that would count as very small carrots.
xenoterracide
although you can put ads. If your crowd is technology minded they won't work, as they will likely have adblockers installed. But people are used to ads and as long as they aren't obnoxious people will be unlikely to complain.

But more carrot than stick. If you hit your users with a stick too hard they won't want to pay and will leave, they may even talk to other users who wouldn't have cared and convince them to leave.

Perks are good. If you have any kind of social aspect consider having people advertised as paying. Theres a certain... prestige gained by letting people know that you are paying for a product that can be mostly used for free (at least I think there is).

r7000
You can also give paying members something besides additional functionality. Game sites with even minor social functions naturally bring out the competitive sides of players. A "supporting" player could have their username in bold or with a star beside it making them stand out more in "Now Playing" or "Top Rated" lists.
Locke
That's a very good point. I've had a player ask for a "feature" where he could have his username appear in red instead of the normal color. I think people like to be able to customize their internet personas and those kind of features would make nice carrots.
kyro
I'm assuming the site you're speaking of is vying.org, from your profile. Why don't you just ask a straight forward question pertaining to the site specifically? You'd get much more tangible advice.

Personally, as a user, if you gave me a 30-day free account, I'd either find a way to game it, or just leave once the free period is over. I get the whole DHH schtick with charging users for a nice service, but free is free, and I don't think many people would pay for a game site, unless something about your site shines far beyond the multitude of other web game sites, if you're referring to vying.org.

Locke
I didn't want to get to specific, because I'm generally curious about this. Also, it seems like an issue that would effect a lot of startups, and I think it'd be better for everyone if the discussion was more general.

As to your comments about my site specifically, I think you're absolutely right about the 30-day free account. I think if I force anybody to leave I'd risk killing the site. I'd rather run it as a hobby site than kill it.

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redorb
forcing users to leave is a hard thing for me to comprehend as being the "answer" to your question. So I think you should avoid most Sticks
redorb
The the guy who just down modded the comment, When is forcing users to leave a good idea? ... and where is your response to the question>?
Locke
I didn't downmod you, I think it's a good question. I think forcing users who won't pay to leave might be a good idea in some cases. Consider the cost in server resources (if it's a server-based app), customer support, etc. It may be too expensive to keep users who won't pay.

Of course, that assumes you can get plenty of paying users in the first place...

sanswork
I didn't mod the previous comment but in answer to your question. Their are a lot of good reasons why you would want to for a user or set of users to leave your service. If for example you are not generating revenue from them and they don't appear as though they would ever pay then having them use a subset of your features would cost you money with little return.

There is the whole idea that they will recommend their friends who will in turn pay but the odds are if they are happy using the small portion of features you offer for free then so will the friends they recommend primarily because they can only recommend it based on the merits of said free features.

Not all customers are profitable and dropping the ones that aren't is never bad business.

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mlinsey
Are the enhancements you're planning with the next version separable from the rest of the site? It sounds like you answered your own question: you feel that the stuff you're adding to the site will make it worthy of paying for, as opposed to your current site which presumably is less worth paying for (but it sounds like you have a significant number of users happy with your free site). Why not just charge for the new features that you're adding?
tstegart
Take a look at most blogging platforms for ideas of carrots or sticks. I.e., you get a free blog, but can get a lot more if you pay.

I think your question boils down to four things:

What is core to enjoying the site? I haven't looked at your site, but someone mentioned games. If you want people to come back, it should be enjoyable. If they come back and something they expect isn't available to them and requires payment, they might begin to resent you. If you're going to embrace the freemium model, I think most successful people have made as much of the core stuff as free as they can. I'm not saying make as many things free as you can, I'm saying make as many important core elements as free as you can.

What are your competitors doing? Two things you should look for. One, what are they charging for that you're ok with giving away for free? Its a marketing tactic. You can get their users if you provide something better. There's nothing worse than charging for something just because you needed to pick something to charge for. People will look at it and say "Thats so simple, why isn't that free?" Two, what do their users think about the things they charge for/give away. This is a competitive intelligence tactic. Go read their forums, and look for clues. Did they try and charge for something and have a huge uproar? Or did people just say, "sure, ok". What is the most requested feature they have? Its pointless to make your competitor's mistakes when you can see what the results were. Don't copy their bad choices. But to know what was bad you need to do some research.

How much does it cost: I think most people are ok with paying for stuff they know costs you money, IF you clearly make that the case from the start. If you give away almost everything for free and then try to introduce cost into the mix, it doesn't go down as well as it would than if you had said upfront "Hey, this costs me a lot to provide, so its going to have to go into the premium side." You also have to think somewhat long term. Advertising won't pay for everything, and its likely that you can't keep covering all the costs. You won't be around long if everything is free. If something is very expensive to provide, ask people to pay for it.

Don't be afraid to change: As your site grows and gets older, get feedback on what parts of your site people really use. You can switch stuff around from the pay or free columns and experiment a little. If there is one feature people consistently ask for to be included on the free side, and it hardly costs you anything to provide it, why not give it away?

A word about advertising. I may be in the minority here, but I don't care if advertising is on the site or not as long as its not annoying. I wouldn't pay to have no ads, because I'm not bothered by them. If I was bothered by them, I probably wouldn't use your site. Why don't you research how well that has worked for others. Do people actually pay to remove ads, or is it just something in a list of things to make money that nobody has actually bothered to research lately to see if it works? Almost every site we use today has ads, its just a fact. I say keep them across the site, make them somewhat inconspicuous, and use the revenue to offset the things you give away for free.

Locke
Thanks, that's a lot of very good advice!

About ads... large game sites (competitors) tend to have lots and lots of very, very annoying ads. But, they're free. I'd rather be a smaller, membership site without all the annoying ads. So, I'm reluctant to even use ads on free accounts because I think it sends the wrong message about what I want my site to be.

tstegart
What about few, non-flashy non-annoying ads? :) I mean, you're the owner, you get to decide what ads you want, and you're allowed to place restrictions on what they can do, look like, etc. The more restrictions, the less advertisers you'll find, of course, but some simple rules that you set in place can differentiate your site. For example, Digg.com only has two ads on the front page. One above the fold, one below. I don't mind it at all. Just think, where your competitors have cluttered and frantic designs, yours could be clean and clear. One other point. People may pay for ad free versions because the ad version is incredibly annoying and cluttered and hard to navigate. If your free version is nicely done (which I recommend), you can run ads site wide without annoying anyone and use memberships to get repaid for the things that really cost you money.
xlnt
the carrot stick
spydez
If your site is the kind that can be of use to both persons and businesses, you can set up a pricing/features structure that encourages businesses to pay a decent amount, but lets individuals get by for free or cheap.

I believe DHH touched on that in his Startup School talk: Businesses are usually more willing to part with their money and also tend to stick around longer.

Whatever you do, be sure to let people get a really good feel for your site before bugging them to reach for their wallet...

lux
I'd lean towards the "carrots" myself, and there are lots of potential ones (user customizable profiles, more simultaneous games, "pro" games, etc). Look at what other successful startup multiplayer game sites are doing and try some out. With carrots, you can still offer a compelling free service but there are lots of appealing things that dedicated users will pay for. weewar.com seems to have succeeded in this, for example (I've taken my wallet out for them in the past, just don't have time for games these days otherwise I'd still be on there).

I would think the key to retaining free players is the quality of the game(s) themselves, and the network effect of having enough players to play against. Checkers probably wouldn't retain me for more than a game, but some of the others on your site seem like they might. Scrabulous seems to be exploding on Facebook for example, while only one or two people I know play Chess... (unfortunately ;)

Maybe a unique game like Lost Cities from flexgames.com -- that was a neat game for a while that you can't find anywhere else...