 Hi. Let's talk monetization and pricing. Hey, am I saying that right? I'm Kuhn, a little bit more about my background. I graduated Berkeley in computer science, did a few years of grad school at Carnegie Mellon, also in computer science. Halfway along, I realized that academia wasn't for me, but I had the good fortune of working with some amazing founders, including the founder of PayPal, Max Levchin, who previously spoke at this event, as well as the founders of Hot or Not, which is a dating site. And from then on, I became a serial entrepreneur. I founded a few companies. The previous one that you might know of is Crunchyroll, which is an anime streaming service. And the latest one I founded is GGWP, which uses AI to detect when there's toxicity in video games. Let's talk about why pricing is important. So, presumably, at this point, you have found Product Market Fit. Now, what Product Market Fit means is there are people out there who are willing to pay for your service. Now, all you have to do is figure out what is the right business model and what is the right price point to charge those users. And presumably, over time, if you can figure out the right business model and the right price point, you'll be able to generate meaningful revenue. Now, why do you want revenue? Well, with revenue, you're able to invest that back into your product or your service, and you'll be able to make it even better over time. That's certainly what the expectation is of your investors, because they're not going to be writing you checks forever. Just remember, even if you have the right product, if you do not have the right business model or the right pricing, you will not have a successful company. If you have the right pricing as well as the right business model, you will have a successful company. First thing to figure out is who are your customers? In B2B, this seems quite straightforward. It's businesses that are willing to pay for your product or your service. In B2C, this might seem straightforward as well, which is end users or customers that are willing to pay for your product or service. Now, there are some nuances here. For example, there are some businesses that look like they're B2C because they have a lot of users. However, their business models are actually B2B. A good example for this would be Facebook. They have millions and millions of users who are using their platform. However, their users are not paying for that platform. Their business model is actually B2B because they are charging advertisers to reach their customers. A caveat of this is if you're a customer and you're using a product and you're not paying for it via ads or out of your pocket, then you are not the customer. You are in fact part of the product. What is the right revenue model? Well, there's actually quite a lot to choose from. I'm going to talk about the really simple stuff, which is advertising, transactional, and subscription. With advertising models, this is very straightforward. Typically, you're aggregating eyeballs and advertisers want to pay to reach those eyeballs. This kind of business naturally lends to large-scale and aggregation or very highly targeted audiences. With transactional models, this is a one-time payment for your product and service. Typically, what you want is to make sure that you are charging a very high ticket price if it's not a very frequent transaction. Examples of this would be buying an airplane ticket or buying a hotel. Ideally, you would want your transactions to be recurring over time, meaning that your customers are coming back again and again. This is where subscription models come in. We'll talk a little bit more about that. At Crunchyroll, we did all three. We took subscription where people were charged a subscription fee to access the service. For people who don't pay subscription fee, we had a free layer with advertising. Finally, we also did transactional, which is if you wanted to pay for review or pay for rent for episode, we charged on a one-time basis. These business models are not mutually exclusive. You can have a subscription model, say your primary subscription model, a business model, and you can also layer that in with advertising. But there is some interplay between them. For example, if you have a service that has advertising as well as subscription, you're over time converting your advertising audience into paying subscription audience. So you're actually losing customers on one side of your business as you're transitioning them to pay it on the other side of your business. Now, that usually works for advertising and subscription because every advertised audience or customer, usually you can extract pennies from them, whereas with a subscription offering, usually you're getting dollars from those customers. So you're willing to make that transaction. Okay, we talked a lot about the revenue side of pricing and monetization. Let's talk about the cost. What are your costs? First, you have fixed cost. Fixed cost is the price or the cost you have to put down just to make the first deliver your product to the very first customer. If you're in games, this would be the cost of the development of the game itself. Besides fixed pricing, fixed cost, there is variable cost. This is the cost of delivering your product or service to the next set of customers. And if you know how many customers you're delivering to, you can just divide and figure out what is your unit economics. Unit economics is incredibly important because as you're scaling, you want to have improving unit economics. What that means is for every customer that you're charging at a certain price point, the cost of delivering that product to that customer becomes cheaper and cheaper. If you have a really high margin for your unit economics, it means that you can scale your business over time, you can get more revenue and you can reinvest that back into better product or better marketing. Remember, you don't want to deliver a product that costs more to deliver to each customer than you can take in. Otherwise, you're losing money for every single customer that you're getting into the door. Here's why you need high margins because when a customer shows up to your service, you're actually paying a lot of money to get that customer. A customer's journey doesn't start on your service. It starts first with awareness. A customer needs to know about your product first before they can come to your service. Awareness can be free or it can cost a lot of money. The free version of awareness is word of mouth. The paid version of awareness is branded advertising or branded campaigns. After awareness, you have what is typically acquisition. User acquisition, as it's usually called, means that you are paying on a per click basis to convert people who are hopefully aware of your product into your product. The next step is conversion. Once you have users on your service, you want to convert them into an advertised customer or a transactional customer or a subscription customer. Now, the conversion method really differs here. If they're an advertising customer, then what that means is the minute they use your service, they're hopefully watching an ad, you're already converting them into monetization. However, with transactions as well as subscriptions, it's a little bit more nuanced. With transactions and subscriptions, you have to actually charge for the customers, meaning you have to have a way of paywalling them, collecting their information, collecting their credit cards, so on and so forth. Now, finally, the last step is retention. Retention means keeping customers you've already acquired and continuing to monetize them over time, hopefully as long as you can. Now, this is actually the cheapest way of getting business because once you've acquired a customer and retained them, you don't need to go and spend more money for awareness or for acquisition or for conversion. Hopefully you keep as many customers in at the retention step as possible and they keep coming back to your service. A price point that you're extracting for a customer times how long they're going to be on your service is what is known as LTV. That's the lifetime value of your customer. You want the LTV of your customer to be as high as possible. The reason for this is because if you know with predictability what your LTV is going to be, then you can spend into your LTV to go build awareness, acquire users and accelerate your product development and accelerate your scale. All of that comes from having a really, really high LTV. And finally, high LTVs also allow you to market to customers because if you're competing against others, chances are they're going to be doing exactly the same thing and whoever has the highest LTV will typically be winning. Okay, let's talk a little bit about price discovery. How do you figure out what price point to charge for? Well, in B2B and B2C, the steps are actually quite similar, although the details are a little bit more nuanced. In B2B, you need to understand how competitors are pricing their product to their customers and you need to start testing your pricing. B2B is a little easier in this respect because you have a one-to-one relationship with your customer. You can start by just testing the price. Usually you try to start with something high and then you pitch them and see if they smile or they reject you or they get angry or whatever. But that's great signal because once you've had a number of those conversations, you'll have a really good sense of how much you want to price your product compared to competition. And then from there, you can iterate. With B2C, it's a little bit more nuanced. It's very difficult to have that type of one-on-one conversation. But what you can do is you can do pricing surveys. You can ask a number of your users at what price points they will be willing to pay for your product and use that data to drive your pricing strategy. And finally, if you wanted to test, it's very difficult to test different price points to different users at the same time. But what you can do is you can have introductory pricing or introductory offers and then you can change those offers over a period of time and then see what converts best for your customers. Let's talk about competitive pricing. If you're competing against someone else in the same space and you're trying to figure out how to price your product, it's actually a very nuanced conversation. You want to make sure you understand who is your customer, what is the product offering you're delivering to them, and from there, the pricing falls out. From a customer perspective, you can think of customers as a broad base. However, it's actually quite nuanced. For example, there are customers who are low market, mid market, or high market. Low market customers typically want the most baseline offering and they're willing to pay the least amount. And at the other side, high market customers are willing to pay the most because they're expecting the most comprehensive offering or comprehensive service. And it's your job to figure out what kind of customers you're going after as well as what kind of product offering you're putting in front of them. And what you want to do is make sure that you are pricing higher usually because you don't want to be stuck in a war where you're lowering your price over time. As we said earlier, lowering your price over time causes your margins to go down, which means you have less money to invest into product and into development and marketing. So doing that customer research, figuring out what your customer wants, figuring out what more are they willing to pay for, having a higher priced offering, having a more competitive and more full feature product is usually where you would like to start. It's much more difficult to go from low to high than it is to go from high to low. Now, everything you think about pricing is actually relative. This might make a lot of intuitive sense when you hear it, but pricing is not absolute. Everything that you're pricing is relative to something else. It's your job to figure out what that relative pricing is, whether it's the product of a competitor or whether it is an alternative experience that your customers are buying into. As an example, with Crunchyroll, when we're thinking about pricing our product, our pricing is versus other experiences or other ways of spending time that customers might have. For example, we're thinking, would they rather eat a Big Mac or would they rather pay for a month of anime service? Pricing is always relative and I'll come back to this later on in the presentation. Keep prices high. You can always lower your price. It's very difficult to raise your prices, but there are some tricks you can do in order to keep prices perceived high while keeping them low for customer entry. For example, let's say you have a service you're trying to launch and you know that $5 is the right price point. Option one is to say, we're just going to launch this at $5 a month and see what people say. Option two is to say, you know what, we're going to price this at $10, but we're going to give an introductory pricing discount of 50%. So you're still at the same price point. You can always keep that introductory rate or discount forever or you can lower it or raise it later on. However, going from $5 and increasing the price over time is incredibly difficult. So keep your prices high at the beginning and lower them only if you need to. Typically with what with product, you actually want to increase the price over time as you are creating more value proposition and making your product experience better. Therefore, you should be charging more. Okay, I've said a lot about pricing and revenue and business models. Now, my favorite by far and I might be a little biased is subscription. Why is subscription in my mind such an attractive business model? Well, for one, there is an incredibly stable recurring revenue. You're able to predict very far into the future how much revenue you will get and you're able to scale your business according to that. And those types of businesses that have predictable revenue streams and growth are able to command very high enterprise value, meaning that the valuation of your company is going to be much higher. With subscription businesses, you have a lot more control over fine-tuning your business and monetization and product offering and product bundling and all the ways that you can increase your revenue over time. However, subscription is not the best fit for every business or every product. You need to have a very clear value proposition that you're delivering to the customer in your subscription in order for a subscription product to work. In the anime case, it is watch every single anime anytime you want. You need a very clear value proposition for a subscription service to work. Next thing is you need to be willing to improve your subscription service over time. What this means is that every time a customer comes back to your service, your service has gotten better. That makes it better for existing customers as well as for new customers. And finally, you need to be able to manage the nuances of a subscription business. The two key parts of that is user acquisition and user retention or churn. And we'll talk about this in a little bit more detail. Okay, so here's some subscription hacks that we've used that crunchy a number of times that we use more hacks than this. But these are some of the ones I wanted to highlight to you. Now these hacks might apply to other business models as well. I'm just presenting them from a subscription lens. Okay, the first one is international pricing. If you're from the United States, this is actually a pretty easy one to ignore. But I imagine here where you guys are in many different markets, this is actually a pretty standard one to think about. How do you price your subscription or your transaction or your offering in different countries, in different geographic zones, in different currencies, in different markets, under different pricing parodies. How do you adjust the pricing over time? This is actually an incredibly nuanced and complicated conversation. And it takes a lot of research and a lot of time in order to get this exactly right. Now the fortunate thing is there's some people that have done all that hard work for us and we just need to copy their work. The most well-known of this is the Big Mac Index. This is something you can actually look up online that is being tracked. What the Big Mac Index does is McDonald's has taken all the hard work into figuring out what is the cost of their good being delivered and the Big Mac being it's you know in many different geographic regions so it's fairly standardized along with purchasing power parity along with GDP per capita and they've come up with a pricing index. So if you're buying a Big Mac for six dollars in the US they're pricing that at say three dollars in Southeast Asia or you know five dollars in parts of Europe. What you can do is you can take this relative pricing index and apply it towards your subscription or your transactional model. Now the bad news here is that Big Macs are very expensive here in the Nordics because you guys have some of the highest indexes for for the Big Mac Index. If you don't want to look at the Big Mac Index there's other indices that you can look at typically for subscription services or for digital services. We look at say the Netflix pricing model where they're pricing into many different markets with their subscription offering. Let's talk about price anchoring. Price anchoring is incredibly important in terms of establishing the price of your product and getting customers to intuitively understand that value proposition and to choose the pricing that you want to offer to them. As we said earlier pricing is relative. Now what we're doing in price anchoring is we're saying if we know pricing is relative we're going to set the benchmark on what it is relative to so that customers can see the relative value and they can choose the one that we the price point that we want them to choose. It creates a really interesting framework for value proposition to communicate that to end users and ultimately it sets a bar for how you think about your perceived value to your customers and vice versa. But what this doesn't do is it doesn't solve the work that you have to do to do the actual research. So do the research first. What I mean by that is figure out what is the offering that your customers, majority of your customers want to get and figure out what you think is the pricing that they are willing to pay for. Let's take an example. Let's say in this hypothetical product we are offering seats and we're offering hours of support. In this example we've done the research we figured out majority of our customers are looking for 10 seats and they're looking for 10 hours of support and we think that we can charge $30 and make a really healthy margin on that. How do we get the customer to want to take this price? Well if you present this price directly to the customer it's actually very difficult or abstract for them to think about why you're charging them $30 because they have no relative basis in order to compare this against. So this is where we introduce value proposition A. In pricing value proposition A we gave the customer five seats and we're saying we're going to charge $20 instead of $30. However knowing that most of our customers are looking for 10 seats and looking for 10 hours of support anyone looking at this will realize wow A is not that great of a deal B seems like an incredibly good deal I'm going to take that and that's how you get customers to want to choose the price point you want them to choose and give them a reason in terms of thinking about the value proposition of what you're providing to them. And finally what you want to do is you want to add another tier. This is usually set so that you can have optionality. What that means is there's going to be 10, 20, 30 percent of your customers who don't want the basic plan. They want something much better or much more different. In this pricing plan you want to mark up the number of seats and the number of hours of support and then if you want to preserve the flexibility you just ask them to contact you and when they do you can negotiate directly on what kind of pricing you want to offer them. Another option here is to increase significantly the number of seats and the number of hours and set a much higher price point and see if the customers will take that. Either way you get really good data about what kind of pricing plan you want the customers will take and you want to present this to them all in one view so that they know exactly how to compare against each of these prices. Okay here's the secret trick for subscription. Give it away for free okay. When in doubt give it away for free because there's nothing better than getting free stuff and this is the best way of signing subscribers to your service. Every successful subscription service has some version of giving it away for free. Now what you'll notice is that there's a there's a asterisk there. It's not actually it's not actually free. What I'm actually talking about is a free trial okay. A free trial means you let the customer experience your product the full premium product for free assuming they sign up for a free trial by giving you their email as well as their credit card number and then if they don't cancel after seven days or 14 days then you automatically build them as a new subscriber. This is the best way of converting and acquiring users into a paid subscription. Now there are some nuances of this approach. For example you want to make sure that all of your customers are going to the same upsell flow. This upsell is basically a way of communicating what you get from becoming a premium subscriber or a paying customer. The second step is the sign up. This is where you're trying to convert them. What you need in the sign up is to make sure it has the minimum amount of resistance because any information that you're asking from the customer here will cause increased bounce rate from this page. So minimally you would want to get their email and their credit card and that's it. The next step is the free trial conversion. Hopefully after seven or 14 days they've tried your product, they liked it a lot and now they are automatically going to convert into a paying subscriber. The benchmark here is a good conversion meaning a good product along with a good flow converts 60 to 70 percent of free trials into paying customers. And then the final thing is retention. Retention is incredibly important and we'll talk a little bit about that in detail. How do you track retention? The very basic approach is to talk about cohorts. What is a cohort? A cohort is a group of users you are tracking over a specific period of time. For example, people who sign up for the free trial in March is one cohort. People who sign up for the free trial in April is another cohort. What you want to do is take all your cohorts and look at them and stack them against each other. And over time, presumably as your subscription service is getting better or as your product offering is getting better, your cohorts should have better and better or lower and lower churn over time. And as your product gets better, every cohort that comes into your product will also have less churn over time because your product is getting better by definition. The important thing to focus on here for cohorts and for churn in general is engagement. There is a high negative correlation between engagement and retention. What do I mean by that? People who are really engaged with your service will not churn out. People who are not engaged with their service will eventually churn out regardless of whether they're paying or using the service or not. So make sure you focus on people engaging with your product. And finally churn. Churn is actually incredibly complicated topic. A lot of people think about churn and say, you know, it's 5% and 6%. Churn is actually much more nuanced than that. New users always churn out at a higher rate. So a service that grows much more quickly over time actually has higher churn. That's typically very normal. What we look at is three charge, meaning that the first three times you build that customer, what is the churn of that customer? And the three charge typically is very indicative of the lifetime of the customer. And one final point is that not all churn is the same. For a service that has, say, four customers showing up every month but has a 50% churn, that might actually be a better business than a service that has four customers that has 25% churn. The reason for this is because when four people come in but two people stay forever, those two people are going to be your customers for the entire life of your service. And that means your lifetime value is incredibly high. Whereas the other service, if they keep churning out old users every single month, then you actually do not have a very sticky product. And I am 25 seconds over. That's it for introduction to monetization. Kitos.