Freemium Model – Our Experience

Here is some notes from the Freemium session at Google I/O. I wanted to annotate it with our experience with InfoMinder.

Why would you offer something for free?

To give the user time to learn about the product

User can provide distribution benefit (inviting other users to the product)

Network benefit – adding value in some way

The scale of conversions is in a 1-10% range.

In our case, we sent email message to about 20 friends and had a network of about 3000 users in 6 months. We provided the product free for a year. Then we started charging for a professional version but kept a basic version free for some time. Our conversion rate, initially was slightly more than 10%. We had a much bigger payoff when two companies OEMed our product.

In the past no business app, except Intuit, has penetrated the 10 employee or less market.

The model is going after new segments and new opportunities with a scale that can make it work.

Direct vs. indirect revenue models.

Feedburner – free version and $5/month version with some extra features.

Our basic version is still less than $2.5/month.

Product segmentation of free versus paid side

Viral/growth oriented things should be on the free side

Things that engage users in deeper behavior should be on the paid side

Can be difficult to draw the line within a company of what should be free vs. paid

The pricing was a bit difficult for us. We initially priced it at $14.99 per year. Gradually moved it up to $30/year. Our current products range from $30-$5000 per year based on the configuration. We have a lot more customers in the mid range $10/month than in others.

Start from the beginning with the model you hope to put in place – put your business model in beta at the same time you put your product into beta

This is easier said than done for two reasons. One is that product evolves and also your knowledge of customers. It took us a couple of years to find the sweet spots.

If the free product is so good that there’s no reason to pay, then an alternative is to limit capacity. Where do you draw the line? On the selection of features or on the capacity? – find your fanatical users and have them help you segment where the paywall should be

This is exactly what we did. Our trial product is almost as good as our full product. We charge by capacity. Others like WordPress do the same.

Establishing the value of your product is probably more important than establishing a pricing model right away.

This is very true. We continue to get business and keep customers even though there are some free products that provide some of the functionality. One of our customers told us that after trying out a few competitive products, they decided to stay with us due to a combination of quality and support.

Your instinct about what your customer will/will not pay for is likely wrong. Be flexible early in your business to be able to listen to your user feedback. Have the right premise – if you need 100M people to use your product and it’s not viral, it probably won’t work, for example.

Question: Freemium seems to be when dealing with the direct consumer. What is the balance between different models?

In mobile gaming space — collecting pennies per user over a lot of users can make a big difference. A mix of revenue types (direct/indirect) can work

Conversion rates will probably be between 2% and 5%, realistically. Most people won’t pay you for features (you may think they’re more valuable than the users do). Make people feel like they’re getting more value than just additional stuff than they’re already users.

Go ahead and read the wave. It has lots of information. Please feel free to ask us questions. You can email me or contact me directly (my co-ordinates are in the About link).

Advertisements

One thought on “Freemium Model – Our Experience

  1. Thanks for this great post – a lot of good tidbits here that got me thinking about my own freemium start-up. Your posts touch on a lot of the same topics of two SlideShare presentations – http://www.forentrepreneurs.com/two-excellent-startup-presentations/ – on Pandora and Xobni. Most very successful freemium models that you see today evolved over time to find the “sweet spot” of free features/capacity vs paid features/capacity. It is always interesting to read about how different models evolved over time.

Please Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s