1. Detailed Analysis & Recommendations

November 1, 2024

What are the pros and cons of the existing pricing model?

The existing pricing model seems initially approachable, but it can lead to confusion upon deeper investigation. The per-seat pricing is easy to digest for hobbyist developers, and there is almost zero friction around getting your project up and running.

That said, as projects scale and depending on who the buyer is, it may become difficult to not only economically justify upselling to an Pro/Enterprise Plan, but also may lead to tangential conversations about the allotment pricing of specific services rather than the overall value the Vercel platform provides

How does our pricing model + strategy compare to similar companies?

Upon conducting an initial analysis with ChatGPT and then diving deeper into each individual company, Vercel is priced relatively competitively from a list perspective:

1. Vercel

  • Free Tier: Free tier with limited bandwidth (100 GB per month) and basic serverless function usage. Supports personal projects, Git integration, and automated deployments.
  • Paid Tiers:
    • Pro: Starts at $20/user/month, includes more bandwidth, enhanced serverless functions, and team collaboration features.
    • Enterprise: Custom pricing, including advanced features, SLA, and custom support.

2. Netlify

  • Free Tier: Offers free static site hosting, 100 GB of bandwidth, and 125,000 function requests per month. Ideal for small to medium-sized personal projects.
  • Paid Tiers:
    • Pro: $19/user/month, offering more team-oriented features, bandwidth, and 1 million function requests monthly.
    • Enterprise: Custom pricing, with larger bandwidth, advanced SLAs, and premium support.

3. AWS Amplify

  • Free Tier: Free for 5 GB stored and 1,000 build minutes per month for the first 12 months. Pay-as-you-go model for beyond free tier limits.
  • Paid:
    • On-demand Pricing: $0.023 per GB stored, $0.15 per GB served, and $0.01 per minute for build minutes. Works well for scalable projects, but costs can rise with high usage and data transfer demands.

4. Cloudflare Pages

  • Free Tier: Includes unlimited sites, 500 build minutes per month, and 100,000 requests per day for Cloudflare Workers (for serverless functions).
  • Paid Tiers:
    • Pro: Starts around $5/month for enhanced performance, with additional charges for higher usage and advanced caching.
    • Enterprise: Custom pricing, including premium support, higher traffic limits, and security features.

5. Firebase Hosting

  • Free Tier: 1 GB storage and 10 GB of monthly bandwidth, with limited support for serverless functions via Cloud Functions.
  • Paid:
    • On-demand Pricing: $0.026 per GB for storage and $0.15 per GB for bandwidth. Cloud Functions also have separate pricing. Works well for apps requiring strong integration with Firebase services, but data transfer costs can add up.

6. DigitalOcean App Platform

  • Free Tier: No free tier for web apps (static sites are free), but free for the first 90 days with a $200 credit for new users.
  • Paid Tiers:
    • Basic: Starts at $5/month for simple apps, with scaling options.
    • Professional: From $12/month, with additional storage and concurrency. Ideal for small to mid-scale projects; data transfer costs are extra and can be steep.

7. Render

  • Free Tier: Free static site hosting with 100 GB of bandwidth.
  • Paid Tiers:
    • Web Services: Start at $7/month with options for higher tiers that allow more CPU and RAM resources. Database, Background Workers, and
    • Cron Jobs: Priced separately, generally affordable, but cumulative costs may increase with high demands.

Summary

  • Best for Free Hosting: Vercel, Netlify, and Cloudflare Pages have generous free tiers suitable for personal projects.
  • Cost-efficient for Scaling: AWS Amplify, Firebase, and DigitalOcean App Platform offer granular, pay-as-you-go pricing for scalable apps, but costs can rise with high bandwidth.
  • Affordable for Teams: Netlify and Vercel’s Pro plans at ~$20/user/month make them affordable options for small to mid-sized development teams.
  • High Traffic: Cloudflare Pages has the advantage with unlimited sites and high daily request limits for free, while Render is budget-friendly with 100 GB free bandwidth for static sites.

What type of target customer is each plan optimized for?

  • Hobby: Tailored toward individual developers or small teams that are looking to quickly deploy a project. Teams may not have the devops experience or resources to manage PaaS/IaaS configurations.

  • Pro: Tailored toward teams that have scaled beyond the resource needs of an MVP SPA and/or require more extensive collaboration tooling at scale.

  • Enterprise: Tailored toward large customers that are used to the pricing & packaging of IaaS solutions and may be considering a PaaS solution to offer more functionality, lower cost (per developer), and ultimately decreased time between releases and feature pushes across globally distributed teams.

Does the current model optimize for revenue growth or for user/account growth? Why?

The current model optimizes from user/account growth. Vercel’s DNA is rooted in open source/developer-focused products and services.

Next.js revolutionized the way React developers build and deploy single page applications and more, and the platform hosting functionality was a natural evolution of the Company’s core ethos. The pricing and packaging reflects this - it’s incredibly simple to spin up a project, and once a user has a great experience with the platform, the stickiness is naturally going to follow - especially considering how core the code, hosting and collaboration tools become to the team.

In contrast, today’s Enterprises scaled to where they are on legacy infrastructure. The sale is a rip and replace rather than a greenfield opportunity that scales with a young startup. Accordingly, Vercel’s Enterprise offering is priced & packaged in a way that past IaaS buyers are used to - usage/threshold-based, and now abstracted away intro Managed Infrastructure Units.

How should we think about optimizing/maximizing pricing? What is the appropriate North star to aim for? Why is that appropriate for Vercel specifically?

Vercel should focus its pricing on being familiar with that of legacy IaaS providers that buyers can appropriately compare & contrast, but different enough that it conveys the Company’s unique value proposition.

For example, Cloudflare started as a security-focused platform and has since evolved to offer services similar to that of Vercel but with the opposite GTM motion – starting with Enterprise and moving downmarket. Vercel’s competitive advantage is that it is not only a superior PaaS, but it also has the trust of over a million developers, the majority of whom (I presume) also leverage Next.js.

Trust is earned, not given. And in tech, users only adopt a new platform, product or service when it is 10x better than what they’re using currently. Speaking from personal experience, building my Vercel site for this case study took me half an hour, where it took both me and my cofounder nearly 3 weeks to get the 1st version of Hirevisor up and running. I strongly recommend that Vercel not lose sight of this and always keep PLG as core to its GTM motion, pricing & packaging.

What components of pricing are most important to focus on at Vercel’s stage?

Vercel needs to balance core, recurring revenue with upside capture. Core commitment in terms of seats/users should be balanced with volume-based pricing that scales with customers in a manner that is transparent and comparable.

What 2-3 changes do you foresee as most impactful? What type of impact would you estimate from those changes? Any other potential opportunities that need more research?

I have 3 specific recommendations based on my user research interviews, competitive analysis, and past experience

1. Simplify. Each of the 3 folks I spoke with initially thought Vercel’s pricing was clear and easy to understand…and then they scrolled down the pricing page. Granted, none of them was a full-time devops engineer, but they each walked back their initial assessments once they saw all the detail in the 7 sections following the initial pricing block.

2. Show, not tell. Without some key additional pieces of information beyond the competitive landscaping, I am confident in Vercel’s current list pricing relative to market. The issue is in the packaging and presentation. I would strongly recommend introducing either an ROI calculator, an allotment scaling widget, or a combination of the two. Depending on who is buying at the Pro/Enterprise level, if you want to fundamentally change the value proposition from that of an IaaS+ to a true next-generation PaaS, the pricing page needs to convey value and ROI in a manner digestible to non-technical stakeholders. The detail can follow in the Proposal/Negotiation Stage.

3. Highlight the MIU concept across all tiers. MIUs are a fantastic step toward simplifying and standardizing all that Vercel offers. I recommend highlighting this concept in the Enterprise tier and flowing it through to the Pro and Hobby Plans. Buyers want to feel like they’re getting more for less on a unit basis. Right now, it is currently quite difficult to make these calculations on the current pricing page.

Impact-wise, I hypothesize that these changes would 1) minimize initial buyer apprehension and increase Demo conversion rate, and 2) increase enterprise sales win rate by empowering reps with the tooling and collateral to make the sale about overall platform value rather than exhaustive features & functionality.

In order to better support my recommendations (and/or potentially change them), I would want to understand:

  • Current funnel metrics
  • LTV/CAC
  • ACV by segment & tier
  • Net Dollar Retention by segment & tier
  • Flywheel details (ie: how and when is a Hobby customer prompted to upgrade to Pro? What do customers do if they choose to leave Vercel after reaching the limits of the Hobby tier?)
  • Flywheel Details by Segment (how quickly do AI applications move through the flywheel vs eCommerce, Vanilla SPAs, etc.)
  • Average Sales Cycle
  • The provided margin information was useful, especially as it relates to breakeven analysis around the number of Pro & Enterprise customers needed to offset the Hobby tier, but it was not as relevant to the low-hanging fruit articulated above.