Segment announced earlier last week that they were going to be giving away up to 25k or two years of free analytics to startups that have raised < 5 million dollars. While Segment is a rapidly growing company thats clearly achieved product market fit, it doesn’t fit the scale of a company that traditionally offers free business credits (i.e. Google Cloud, AWS, SAP, etc.). For these companies, the credits either
a) serve as a loss leader for dependent or sometimes non-dependent products (Google Cloud for Big Query, GDrive, etc.) or
b) are part of a product-suite with high switching costs. For example, once a company is locked into an ERP tool like SAP, they can’t switch out but also are going to add tangential products over time
Segment only has a single product, which while it can be subsidized by larger clients, doesn’t at the moment extend into a larger pool of offerings. Segment is essentially betting that some of these early-stage companies will grow into hyper-growth winners, making switching costs high during growth and locking in a future high-value customers.
it’s essential a sector bet that startups are going to continue to prosper and the companies Segment chooses to participate will be on the whole, winners. It’s eerily similar to an early-stage VC betting on a ton of startups in hopes of getting one outlier that will subsidize the lost costs on the other investments. And there’s an opportunity cost to this: Segment could have used the money to market and integrate up-stream (ie. Fortune 500) , akin to going being a primary Series A, B, C VC going down to seed-stage instead of extending into growth equity.
This brings up an interesting possibility for other mid-stage startups: once hyper-growth among the core demographic starts to slow, betting on the sector or on free companies through subsidies removes success totally out of the company’s control, but provides the possibility of outsized returns, independent of new product developments. Will be interested to see if other companies give it a shot!