Pricing software - our experience with Connhex

January 19, 2024

We’ve been working hard on improving Connhex Edge for the last few months - and we’re now giving it away for free. To understand our reasoning behind this decision, let’s start from how the first value proposition for Connhex was structured.

Back to the start

Our first iteration for Connhex’s business model was based on a fixed, one time fee. We were targeting small businesses looking for an on-premise IoT platform: having the simplest model ever, we thought, would give us an edge.

Even if we were able to generate some demand for it, this approach had two major issues.

Every customer either expected support to be included for free forever, or asked for a separate support and maintenance contract. While the first option wouldn’t be easily sustainable, the second request was perfectly legitimate: but if you pair a fixed fee with a recurring one, you can’t say you’re only asking for a one-time payment in good faith.

Moreover, the number of devices customers were planning to connect varied greatly. Thus, striking a balance between offering a competitive per-unit price and having a sustainable business model turned out to be a nightmare.

Adding an on-device agent

That’s where Connhex Edge enters the picture. We launched it after Connhex1 and offered it on a one-time, per-device basis. This way, we could:

  • support bigger customers properly, since they would be paying us more
  • have a pseudo-recurring revenue stream, to finance the maintenance of cloud Connhex instances
  • allow customers to choose whether add-ons were useful for them or not - only paying for these if necessary
  • we would still have the flexibility to adjust pricing by providing volume discounts

There’s a catch, though. Not everybody needed Connhex Edge, especially in its earliest form

Moreover, the value proposition wasn’t compelling:

  • potential customers felt they were overpaying the edge agent
  • our cloud infrastructure was undervalued, since we were offering it a huge discount.

So here we are: an overpriced edge, an underpriced cloud - all caused by our stubbornness to insist with a fixed-fee model.

Simplify, simplify, simplify

Everyone knows you should keep things simple: the difficult part is realizing when you have complicated them.

It’s a circle: you start simple, grow complex, prune down to simple.

We updated our Connhex Cloud offering to include three pricing tiers, differentiated by features and number of supported devices2. Connhex AI follows a similar model, with two tiers including different features.

This way, our incentives are perfectly aligned with yours: the only way we get paid more is if you sell more devices or need additional services. And our direct costs - mainly support and maintenance - scale with our revenue, so that’s in the right place too.

This brings us to Connhex Edge. It now packs a lot more features than the version we used to charge for - and it’s available for free3.

With the benefit of hindsight, this is how Connhex should have been offered from the very beginning.

We were trying to differentiate ourselves from the plethora of IoT platforms out there by avoiding charging on a per-device basis, but it was a useless dimension to differentiate on.

Connhex’s value lies in being the best solution for device manufacturers.

When should I give it away for free?

Trying to extract general considerations from any given experience is always risky, but let’s give it a try.

First things first, this question can only be answered by looking at your business model in its entirety. A couple of examples:

  • if your product is open-source, you’ll usually give it all away for free - and then only charge for support and maintenance, or additional Enterprise features. It’s not as easy as it sounds, however.
  • if you offer a freemium solution, you’ll avoid charging the first tier and try to upsell as many customers as possible

It also depends on your financials: if you’ve raised venture capital, you’ll usually first try to get as much of the market as possible. Being generous with your free tier is a great way to get closer to this goal.

Should your solution comprise multiple components, it makes sense to only charge for the core ones.

This in Connhex’s case, where we don’t charge for Connhex Edge. Also, keep in mind how costs would evolve: how much do your costs rise for every unit of product given away? Ideally, you’d like to keep the cost of replication close to zero.

As a general rule of thumb, put all the innovative ideas you have in your product - not in its pricing strategy.

Of course, platitudes like this are meant to be contradicted - if you feel like doing otherwise, do so! You’ll be in a better spot by having a great product and a bad pricing strategy than the other way round.

We’ll be sharing everything that’s new with Connhex Edge in the following weeks: if you’re interested in it, you can subscribe to our newsletter to get every article delivered to your inbox - we only send these, so don’t worry about being spammed😉

  1. At the time, we only offered a cloud platform - called Connhex. Later on, after the introduction of Connhex Edge and Connhex AI, we started using the term Connhex to designate the entire suite, with Connhex Cloud being - as the name suggests - the cloud part.
  2. Since Connhex is not a typical SaaS - you get the entire suite running on your servers from day one - we ask for a minimum commitment period.
  3. Something we’re quite proud of: even if you don’t have an active Connhex Cloud subscription anymore, you’ll still be able to get every Connhex Edge update for free forever - just make sure it’s compatible with your Connhex Cloud instance.