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Feemium model may not work.
We just got back from the Freemium Summit last Friday and it was exciting to hear how focused everyone was on metrics, especially around customer acquisition, retention & usage.
GigaOm's recap is here & a raw compilation of tweets and presentations can be found here.
The metrics that came up most often were:
The best quote at the conference came from Drew Houston of Dropbox, who said "It’s all about finding things in the margins — lots of little things rather than one key thing.”
What metrics are important for your business? How do you track them? How different is the freemium approach from traditional subscriptions?
It is very difficult to properly segment users and features such that you provide enough value to both paid and free audiences. For example, an email service that provided a 10 MB of storage for free and 1 GB for the paid version would have a hard time surviving – the basic offering isn’t sufficiently compelling to get people in the door. Conversely, a service that offered 2 GB for free and 10 GB for the premium service might be giving away too much value in the free product to expect a large audience of people to upgrade. And that’s just one product dimension. Adding more dimensions just makes it that much more difficult to figure out the features for which users would be willing to pay.
Going with a free trial can be much simpler. You offer one product that users can fully consume for some period of time before they have to decide whether or not they want to pay for the product. It’s more important to figure out how much time a user needs to experience your product before he / she is ready to make a purchase decision rather than which features should be exposed to paying users vs free users.
Under the free trial model, it seems to me that testing alternative hypotheses is easier. You have the features you have and all users get to use them. You can increase the length of the trial, decrease the price, or do both. But what you don’t have to do is to go back through your segmentation of features and figure out if you sorted properly.
At the end of the day, I think it’s good to figure out whether the business model you have in mind works. The sooner you find it out, the smaller the stakes and the more time you have to fix it.
Key idea #1: There’s Consumer freemium, and there’s Enterprise freemium
First off, there was a strong distinction between the usage of freemium in the enterprise versus consumer. In many ways, it was as if there were two completely different conversations going on. In the consumer world, the focus is very much on topics like: payment methods, virtual items, subscription vs microtransactions, etc. In the enterprise, much of the focus is more on the IT infrastructure, departmental structure, expense reports, etc.
I think ultimately the distinction comes down to the fact that in the consumer world, people are spending their own money – as a result, they are much stingier, the demographics are more difficult, and you’re often an entertainment experience competing with other discretionary products. Compare this to enterprise, where the goals are more often utilitarian, and business users can more easily justify an ROI with the tools. Furthermore, because the users live in a broader business ecosystem, you have to deal with the IT organization, as well as the opportunity for people to simply expense their freemium costs.
Key idea #2: Freemium playbook has already been written
Another interesting discussion revolved around the fact that many of the basic tactics in the freemium world have already been documented and used by previous players.
In particular, there are tactics out of the playbook such as:
1. Don't know box's data
2. A free trial is not enough unless you'are selling to the CIA
3. Hook them early and get their data.
4. High marketing leverage: Your users are your marketers.
5. Fore you to make a much, much better product.
6. Reach traditionally impenetrable markets: your product will seep into new ecosystems.
7. If they don't want to pay, they don't have to leave. Only lose customers to yourself.
8. Delayed gratification: some users take years to pay, most never at all.
9. Free = Cheap & insecure ==> No one ever got fired for buying IBM.
10. Google wants to kill you
What's the difference between freemium for personal software and enterprise software?
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