Hello and welcome to 2024!
To start the year off, I want to talk about how bad product management decisions, specifically implementing new monetisation strategies off the shelf, without really understanding your customers/users, can have a massive negative impact long-term. I'll use Splitwise as an example.
Splitwise - The nifty split expenses app
Splitwise has been around for a very long time (2012ish), it's designed to help friends and family easily split expenses, so that its easy to keep track of who owes who what, and settle expenses. They solved a very important problem, created value, and has monetisation potential. I was introduced to it by friends travelling in 2018, and it's one of my most used apps when travelling with friends, dinners in the city, and splitting expenses with my partner in the early days. I've always wondered how Splitwise was going to make money as they had a very hidden "pro plan", no ads, no type of data harvesting - it seemed they were offering a lot of value without asking for anything in return.
Company Background
Splitwise is based in Providence, Rhode Island, led by CEO Jon Bittner, and have about 40ish staff looking on LinkedIn. For quite a while the company flew under the radar, and then raised a $20 million Series A round led by Insights Partners. The TechCrunch article provides some context around their values and positioning at the time - with a focus on freemium and organic growth to keep costs low, but using the new VC funding to boost product cadence.
The Freemium Roll-out
Having tiers and pricing is actually a really good thing - freemium is a tried and tested product pricing strategy that works great for many SaaS companies, especially in the B2C space. Spotify, YouTube, Office 365 and a whole bunch of other successful startups and tech companies have done it. Unfortunately, Splitwise has implemented the freemium model in the worst way possible.
In late 2023, they quickly implemented freemium, and the key points are
- A new "Pro" version that costs $70 USD a year, and if on free:
- A 10 second wait before entering in every expense.
- A max of 3 expenses a day.
- A whole bunch of other restrictions that aren't important.
Why their implementation is terrible
The customer base and pricing: Overnight, they pissed off the majority of their users (Their Google Play store reviews back up my summary here:
https://play.google.com/store/apps/details?id=com.Splitwise.SplitwiseMobile&hl=en&gl=US). Their app store rating has gone from 4+ to be <2 at the time of writing. It's not that users don't want to pay - but the demographic of user that heavily uses an expense splitting and tracking app, is very unlikely to pay the same yearly fee as a Spotify subscription. It's likely the majority of Splitwise's user base is financially saavy, use it during travel primarily, and young. Splitwise is a personal productivity tool, who makes life a little bit easier, but still requires
work. Pricing it the same as a Spotify subscription that offers effortless entertainment consumption is just not the same. There needs to be a price yes, but Splitwise has grossly over-estimated what their users will be willing to pay. Online forums indicate A/B tests were performed, so its likely Splitwise is playing with numbers until they get it right, but currently, they're setup to lose users.
The network effect: Young, tech saavy, financially literate, and social people tend to have influence. Splitwise will face the network effort shortly - users join and remain on Splitwise because their friends are on Splitwise. When you try to get an entire collective user-base to upgrade to Pro, it makes it very difficult for all users to stay. Social networks are generally on iMessage, Messenger, Instagram, or WhatsApp group chats, and it's relatively easily to migrate to a competitor aligned to their next trip together. Once this starts happening, you start losing customers in chunks to competitors who provide a reasonable service, and it's nearly impossible to win them back. Here's a great excerpt from Stephen T who is a free user:
Inducing friction to sell: Freemium apps that cause friction almost never survive. Splitwise is trying to force users to upgrade through sheer frustration rather than "seeing the light" of value. The biggest usability hits are the 10 second wait before entering an expense, and the three expense daily limit.This makes the app nearly unusable, and will impact retention of both existing users, and letting new users appreciate the value Splitwise provides. It now takes atleast 30 seconds to enter in your 3 expenses. Existing users know how this all works, but new users will struggle, and likely un-install and try other apps fairly fast. The typical Splitwise user will use the app sporadically - often none at all most days, then suddenly entering in 10 or so expenses while they are on a trip or just finished one. Friction causes frustration, which doesn't generally translate to users that want to upgrade.
My prediction for Splitwise:
Luckily for Splitwise - they are still the market leader, with their competition far behind in terms of capabilities. This means users cannot easily switch and short term their OKRs will show a massive increase in revenue (not hard when there's no monetisation previously). The challenge though is uptake, usage, and sustaining this growth. Right now users are searching for other apps but nothing comes close. Apps like Venmo Groups, Splid, Tricount, and Fair Share are available, but all have their flaws. The problem for Splitwise is when any one app does 80% of what Splitwise does, the user-base loss will grow exponentially due to the network effect above.
The "luck" comes from the opportunity for Splitwise to pivot fast - their current competitive moat gives them buffer to change their monetisation strategy, and see if that changes the OKRs they will likely have around average revenue per user, total revenue, active usage, and expenses filed.
What would I do?
I've spent an entire blog-post critcising the product and pricing strategy of Splitwise, so it's only fair I offer my two cents on how I'd do things differently.
Reduce the price: The Google Play store comments are a great external substitute for internal CSAT and NPS. Many of the comments talk about the price, e.g. "Reduce the monthly price to <2$ and I'll subscribe". Most users in 2024 acknowledge sofware costs money, especially software that offers real value. Even if Splitwise makes a loss on paper, setting a lower price initially lets them retain customers, while being able to do further exploration on monetisation and the right price to retain an optimal number of users while maximising revenue.
Re-think the pro/free model: It's possible to retain a freemium experience, but change different levers. For example:
- Cap on the total value of expenses: This lets users naturally upgrade as they mentally appreciate the total value of spend they are putting through Splitwise, and lets users gradually use the app to get to this point. Remember, we call it "Pro" for a reason, and users that reach this point will be more willing and likely to pay as they recognise the value.
- Cap on the total number of expenses: Instead of a daily cap, setting a monthly limit of 90 expenses (or a certain quartile based on their usage stats), could help reduce the frustration for all users, while still incentivising many users to upgrade.
- Restrict number of friends: Restricting the number of people you can split with, or even have as part of the available users can help incentive pro users to upgrade. This also protects the network effect, with casual users at the fringe unaffected, while users that split with a lot of different people are more impacted.
There's obviously a lot more Splitwise can tweak and look at in terms of monetisation strategy, but I have faith that the product managers within the org have the empowerment to do so - otherwise the entire ship is in trouble.
My final comment - "Listen to your f**** customers".
