All the indie devs on X today are upset at Planetscale. Everyone is leaving.
Why?
This week, PlanetScale decided to remove their Free tier, but there are lessons here for small startups and larger businesses alike.
Their new, lowest tier of database is $40.
$40!
But this is not just any database, this is a fully managed hyper-scaling database.
This means it has incredible infrastructure running for automation, governance, migrations, rollbacks, synchronization and sharding, incredibly detailed metrics and logging to support all this, and more.
For $40.
If my normal “developer” rate is $150 an hour, this is less than 1/3 of that, so about 20 minutes of work per month to build and maintain all this infrastructure myself.
Can I build all that, and run it, and support it at midnight if something breaks and spend less than 20 minutes on it?
Absolutely not.
SECONDLY,
Free tiers are generally a loss leader, to gain a pipeline of users that can *eventually* become a paying customer, and the idea is that these paying customers eventually can cover all of the free tier folks’ expenses for the business as well as the paying tier customers’ own.
This does work to get users, but it is very hard to make this sustainable when you:
- Have almost all free tier users that don’t *actually* need what you offer (in this case you may need MySQL, but don’t need a fully managed, ultra-scalable, lightening fast instance shaving a few milliseconds from your queries).
- Are not profitable yet.
If you are a hobbyist, I can see why the removal of the free tier and you having to move away stinks, because it *is* work – and not very fun work at that.
However, there are lessons here to help grow your small business and understand why large organizations buy some products over others – and why Planetscale is coming to terms with this reality.
Lesson 1: Revenue Growth vs Profitability
There are two ways for a startup to be successful – direct profitability and an “Exit”.
Profitability
Direct profitability is the easiest to understand. If the money coming in is greater than the money you spend, then you are profitable! Congratulations, you are a successful business!
Planetscale is not *yet* profitable, but that doesn’t mean that success isn’t possible. Why? Because there’s another way to be successful..
Revenue Growth
Many startups, likely Planetscale (I don’t know about their funding and structure, but they probably have taken investments), have the goal of growing revenue as high and fast as possible at nearly all costs – even if it means *losing* money.
At first glance, this seems CrAzY!!
Why would a business *be ok* with losing money?
Well, there are a few reasons, but they all revolve around the “exit”.
As long as revenue is increasing, it’s ok for expenses to increase in tandem, because at some point you have one of two “exits”.
The first Exit type is acquisition.
When a large company buys a another smaller one like this that is *not* profitable, but increasing revenue, the larger company can find “synergies”, meaning HR becomes a duplicate area, some dev teams become duplicates, executive teams can become duplicates – so, layoffs happen.
This is painful, but buying a company and reducing these overhead duplications means revenue stays the same, and costs dramatically decrease, and, in most cases – instant profitability.
The second is when you get to profitability by yourself from this method.
This, too, is painful, and many times the cuts come in the form of free tiers or layoffs, but generally fewer layoffs since you still need HR and all those other roles.
The downside of *not* being profitable is that you have, quite literally, a limited expected runway. If you are losing money, you can calculate how long you will stay in business.
If I have $35, and I buy one $5 latte every month (assuming that’s my only expense), I’ll be broke in 7 months. If I spend that in a day, I’ll have one week until I’m broke.
The only way to increase runway in a company is to:
- Make more money (revenue)
- Be given more money (investment, meaning strings are probably attached)
- Borrow more money (debt)
And not being profitable means you are kicking the can down the road trying to get to an Exit someday.
If your business closes before you get to that exit, you have to take the BAD exit, and your customers lose access to your product or service.
And what if you have already built a multimillion-dollar business on a product that suddenly goes out of business
Well, that leads to the second lesson here….
Lesson 2: Derisking
If there’s one thing I’ve learned in personal finance and business, it’s that when you don’t have a lot of money, you should take a lot of risks (calculated, of course, let’s not get crazy here).
However, as you grow wealth and your business, your mindset should slowly shift.
Healthy, growing, and large organizations can have double digit (10% or so) revenue growth, generally, a far cry from some startups boasting 50% or more in some quarters.
However, at that point they consistently make – and have – a lot more money.
The bets they make now have a more balanced approach:
The decision makers at companies are looking to make an investment that has great upside when things go right, but minimized downside if something goes wrong.
They want to make calculated bets on their future and if your database provider (I dunno, in my opinion, a fairly key part of any app architecture) goes out of business, then the migration off of it will be incredibly expensive and sometimes near impossible depending on how proprietary the platform is!
Because of this, CTOs and decision makers are always looking to make a great return on investment, but while keeping a close eye on the tail risk of their decision.
If they make a decision and the worst-case scenario, is you can’t move your application, or it would take an effort larger than your own business could sustain, is that acceptable?
For most orgs, probably not.
For Planetscale, specifically, they likely have a few customers that pay the bills for everyone else – big customers! Millions of dollars per year (per month?) customers!
Those paying customers want to know they are safe, and Planetscale is making the decision to make a move to de-risk those customers’ choice to use their platform.
Remember, adding in this extra layer of trust could attract just *one* of these large customers and pay for lots of re-hires!
They even say they focus on problems that “enterprise-scale” companies have. Do you think “enterprise-scale” companies can foot a $40/mo bill to test out a database before going all in? Yes. Do they NEED a freemium tier? No.
This means I can’t host free stuff on the platform anymore, but it also means that if my business makes money and is successful, then I can be more confident that I won’t go out of business just because Planetscale can’t pay the bills because I have 5 other free projects they are hosting and trying to use as a loss leader.
Side-note: If you are a startup and can’t get a handful of customers within the first year or so to cover $40/mo, then I think you should either charge more or pick a new idea. Then again, you might not need an “enterprise-scale” database, either.
Conclusion
Planetscale is making a decision to move away from freemium, which is a better path in their eyes to profitability (hey, the numbers agree with them).
Remember that profitability increases stability, which increases trust for real businesses that are looking to balance “hey this is cool tech!” with “could we survive if they sent us an email and said they’re closing down in 30 days”?
Free stuff and being frugal is very useful in the very early days of side projects, and for businesses to get leads, but when you start making money, mindsets shift.
Swing for the fences, but don’t bet the farm.