Pinboard.in Pricing Model: Fixing Their Math
New bookmarking service Pinboard.in has an interesting business model. The no-nonsense Delicious replacement forces everyone to pay a one-time signup fee where:
- Number of Registered Users * $.001 = Singup Fee
The current signup fee is $9.26, which implies that Pinboard has 9,260 paying users. With a little spreadsheet magic, you can compute the total signup fee revenue for the service to date to be $42,878.
There is a problem with this linear pricing approach however. Let’s look at how signup fee changes as the service scales under the current model:
- 9,260 users *. $.001 = $9.26
- 100,00 users * $.001 = $100.00
- 1,000,000 users * $.01 = $1000.00
So, once they get 1mm users, the signup fee will be $1,000 (good luck with that guys). However, if they switch to using the natural log, it scales much more realistically:
- ln(9,260 users) = $9.13
- ln(100,00 users) = $11.53
- ln(1,000,000 users) = $13.82
Using a logarithmic based pricing method mitigates the marginal impact of each new user on the signup fee. I’ll leave the total revenue calculations as an exercise for the reader.
Update: I was asked in a reply to explain the math (explanation of natural logarithm here). It’s really basic. In Pinboard’s current pricing model, for every new user added, there is a linear correlation to the singup fee. Visually speaking, if you had a graph of signup fees on the Y axis as a function of users on the X axis, the result would be a straight line, hence, linear. Each new user adds a fixed percentage of signup fee. The graph for my pricing model would be a curved concave graph like the one here on the upper right explaining the natural logarithm. Each new users add a smaller percentage of signup fee, reflecting an economy of scale.
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wreckandsalvage said:
Can you explain the formula you used in the spreadsheet for me? Three things I’m not very good at are math and algebra. -Quirk
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gbattle posted this
