Stop doing freemium - it's time to make money

The question of the feasibility of using Freemium is relevant for a variety of products and solutions. To be or not to be? Lincoln Murphy sets out his thoughts on this. The reasoning is supported by data about companies that are very well known.

Let me explain ... I don't hate freemium.

In general, there is no such marketing strategy, profit making model, or attracting customers that I would hate. Including Freemium. It just seems to me that when choosing a business model it is sometimes necessary to think more seriously about what it makes sense to use and what should be discarded ..

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Over the past six months, I have been seeing something that can already be called a trend that is gaining momentum: companies entering the market using the Freemium model come to the conclusion that it does not work as expected, and throw it into the dustbin, replacing it with something something more appropriate.

That is, how would finally decide to meet profits!

As for the companies I worked with, the model to which they switched from Freemium turned out to be simple and not exciting at all: premium service + free trial period.

Boredom, is not it? Although, how to look. It depends on what you strive for in your business and how much money you have to finance your aspirations.

Freemium success stories. usual suspects

To be honest, we (the collective ones), speaking of the success of Freemium in B2B, always mean the same small set of companies. It is the same because in principle such companies are few.

But each of the companies * of this small set has the HUGEEST - behind me - I just dropped my jaw when I looked at the latest data - the investment received.

Typically, such companies include:
Evernote - at least $ 251 million
Dropbox - at least $ 257 million
Box - at least $ 409 million
LogMeIn - $ 20 million before going public
Yammer - $ 142 million by the time it was bought by Microsoft for $ 1.2 billion in 2012

* I am sure there are others. I am also sure that there are few such others. The bottom line is that for every Freemium success story there are volumes (I don't have statistics) of failure stories. And you have to pay attention to the fact that for every Freemium success story there are hundreds of success stories of a pure premium model, which you don’t read very much at Techcrunch.

In my opinion, by the way, Yammer was a super-indicative case in the enterprise-solutions market, because this company entered it with a unique sales model for this environment and smashed the rival old Sharepoint. So, Microsoft decided that it was easier to buy such a company than to win.

And Yammer generated revenue (not sure about the profit, either), so it was not just the accumulation of the user base in the hope that someone who knows how to monetize it would buy it (as it happened, for example, with Instagram, which in 2012 was acquired by Facebook for a shameful $ 1 billion, despite the fact that revenue was NULL).

Freemium Success Rules

In order for the Freemium model to work, there must be a VERY BIG market, and you have a LOT of money that would allow:

- Create a user base.
- Understand how to make this database grow by itself (virus coefficient).
- Understand how best to monetize existing growth *.

* Freemium has one big trouble. It often turns out that effectively monetizing existing users is already too late, because psychology “free and forever” is already firmly rooted, and the idea of ​​“Every penny”, when every user is hoped to get at least something, fails.

But for companies with modest financing and a not-so-large market, for which the maintenance of each next user is relatively expensive, or those who know that their service is very valuable, and can earn a lot of money in a narrow address market ... so it’s better to refuse Freemium in favor of something else .

Turning to profit: three examples

Among those companies that I have helped over the past six months, there are three that have decided to abandon Freemium and embark on a profitable path.

1. Qualaroo (formerly KISSInsights, acquired by a company that used to be called CatchFree). In his article in the Wall Street Journal, entitled “Freemium is not for everyone,” Sean Ellis noted that Qualaroo’s free plan “in terms of pricing pulled us to the bottom and did not meet our goals of increasing profits.” This article in the Wall Street Journal is worth reading. I did not work with Qualaroo.

2. Stormpuls. Stormpulse had millions of visits per month, often GIANT transnational companies that were free to insure their billions in assets. Very few users were able to turn into customers (this is the question of why pay for what they offer for free). I worked with Stormpulse. Therefore, they raised prices 10 times and threw Freemium in the trash. And very quickly, in just FOUR months, things went smoothly, and today they only have annual income from repeat customers of $ 1.2 million and they are profitable! It seems that they have worked the well-known principle of "more money - more problems."

3. GetResponse. 10 years ago, this company started in the garage, and today it is practically the embodiment of the success of Polish business. But success did not come by itself. If many SaaS firms can say that each new customer (in terms of customer costs and other related expenses) is not very expensive, GetResponse could not boast with it.

In order to get users accustomed to their service in email marketing, you need to spend some money. But if you continue to support free users (even if everything else is aimed at profits), profits will gradually melt.
And then it may turn out that free users often make one that requires a separate investment in security or anything else and is less and less conducive to the success and fame of the company.

This company was Freemium even before the word “Freemium” became a term, and, in general, did everything right. However, it turned out that there was no point in playing with the users in the “shop” under the Freemium terms, and the company’s executive director decided that it was enough to engage in this nonsense.
They switched to the pure Premium + Free Trial model and today have PROFIT. At the moment, I'm helping their director cope with a rather high percentage of failures and this should help increase the rate of profit growth. (Update: as a result of our collaboration, there were 15% fewer failures).

4. Docebo - This company offers locally installed software for training. Among her clients are leading Italian brands, and the loyalty time exceeds 5 years. In order to expand the business and take advantage of a larger market that is not available to commercially installed software, a cloud solution was invented.
First, Docebo tried to promote it using the Freemium model, however, when it turned out that no one had turned into paid users out of 7000 subscribers of the free version, it was decided to abandon Freemium and launch the Free Trial strategy. And real paid clients began to appear.

When the figures were announced at the last joint meeting, the director was just happy because he understood that there was a market for a cloud solution and investments were being justified.

5. And many others in 2014. For example, SugarSync, Dopplr and Mailstrom, which, according to GigaOm, are in the process of refusing or have already abandoned Freemium. It is interesting to see how they will succeed.

Dopplr (and possibly others) is going to simply transfer all free users to a 30-day trial version and say goodbye to those who are not converted after 30 days.

Although everything can go well, if you take into account the psychology and historical experience, we should expect a big wave of discontent from fans free. I hope that companies are ready for such a development of events, which is very impartial (although it will pass).

You need to understand that when you catch someone in a darmovshchinka, and then you try to get money for what you promised for free eternal use, there will be problems. And even if these users like your product, you have deceived their expectations and you will have to suffer from this psychological “pittance” barrier.

Freemium tempts - do not give in!

I would also like to note that many corporate and traditional software companies that are thinking of moving to the cloud are not able to resist the temptation of Freemium, which promises fast growth in its customer base.

I can’t remember a single case in the last two years, so that someone who asked me for advice on switching to the cloud would not consider Freemium to be a promising marketing strategy for entering the market.

And after all, for some large vendors of Freemium's proprietary software may work, but then they will need to actually develop their own special Freemium, which will definitely differ from the standard approach, instead assuming a lot of specifics.

In conclusion - success in your search for the optimal business model, both for the purpose of attracting customers, there and their subsequent successful monetization!