

The freemium business model: giving away pays - FiReaNG3L
http://buytaert.net/the-freemium-business-model-giving-away-pays

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samson
The questions I have while working on my project is when to introduce the mium
in freemium.

(1) Would you be wise to introduce the premium version at launch with the free
version if there is enough value, even without that established free base to
leverage off?

(2) Should (being the emphasis here in refering to good business conduct).
Should a business have paying customers when a product is in beta version and
isn't yet completely tested against up and down times, bugs etc...?

(3) If one were to go the route of having free users before having paid users,
should the free users have access to what may be removed and added to the
premium release in the future, for the initial purpose of gauging whether
there is interest for certain features over others?

To elaborate on that last concern. If users do get to use everything for
testing purpose, am I going to get into one of those weired battles with
community when certain things get shifted over (even if everyone was notified
at the beginning that this would occur).

~~~
13ren
My own experience is with software that was free for a year before my first
sale (though I made it available for sale pretty much near the start). So I
did do what you are thinking. But I developed it entirely in public: the first
version (released) took me 2 hours to write. This approach was great for
countering my perfectionism.

(1) Yes. You don't need a free version to sell stuff. But what does
"leveraged" mean in your case? If it's a network effect, where your offer has
_no value_ unless there are already users (e.g. a dating site), you would need
some way to build up users.

(2) _All_ products are incompletely tested... it's an opportunity to show
customer service... and version 2. There's a question of degree here of
course. You're right, you do have a chance to try it out on free users -
although bugs are just as annoying for them as for mium/fee customers. Maybe
the way to think about it is: are they paying for the _benefit_ you offer, or
for the _absence of bugs_? People complain, but they still buy - because they
know no-one is perfect. Provided you treat them with respect, they may even
like you more because of it.

(3) People don't like it if you take something away, especially if they
started to rely on it. It creates bad feeling. I think a free trial (time
limited) will give you the info you need.

~~~
samson
I can relate to the perfectionism syndrome. But the release early, release
often theme seems not a good counter while going at paying users. Sometimes
that early release simply isn't worth paying for yet, it may take several
iterations to get to something that is worth a package fee. I agree all
products are incomplete both in testing and in functionality and that should
be used to temper perfectionism.

Though there seems to me a difference between releasing early to get people to
use it, and releasing to get people to pay for it. The release early and often
theme I tend to think should not be broadly applied to both.

Perfectionism aside...thanks for answering my questions.

~~~
13ren
_Sometimes that early release simply isn't worth paying for yet_

If so, no one buys it - no problem :-) (assuming they can evaluate it first,
e.g. free trial).

 _Though there seems to me a difference between releasing early to get people
to use it, and releasing to get people to pay for it._

I don't know. You could be right. But both require a _benefit_ to the user;
and both exact a _cost_ from the user - of learning; time and effort of
changing behaviour to integrate it into their life and apply to their problem;
constraining other choices/products to integrate with the product (depending
on what kind of product you have). It's natural to think _price_ is the cost
of something - but it's simply not. (It's true though, that customers also
think of it that way).

 _hehe_ I'm getting a bit of the answering-the-comment-while-being-edited
syndrome :-) It's a bit disconcerting seeing from the other side.

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apsurd
Freemium is certainly a better model then "we'll figure it out later", but I
think it is very dependent on specific markets. The reason I say this has a
lot to do with my own project.

I'm working on software that builds and maintains business websites. Sorry for
being vague, but I'd rather SHOW you guys when it's up. So in this case I
think the freemium model will hurt my business and my customers, here's why:

No lead qualifying -

If you are targeting a specific niche having a free product encourage anyone
and everyone to sign up. This drastically reduces the conversion rate. I know
the argument here is one of marketing, but if a client signs up for a pet
application and does not have a pet, is he really going to be an effective
marketer? How many accounts have you set for free services you just wanted to
"test out". For me I'd say about 20, and I've never been back since. I'd
imagine they still have my accounts though.

No client incentive -

In my specific case my clients (businesses) will use the software to create a
website. If the service is free, they essentially have no incentive, no
motivation, and no time limit to proactively use the system. Consider the case
where everyone had to pay the monthly fee up front, but came with a money back
guarantee. "Did we not prove our product was useful? No problem, here's your
money back". If a customer pays for your services, he definitely is going to
spend time given it an authentic test run - his money is on the line!

Paying customers cover free versions?!

Again, depending on the product, and payment structure, your much more likely
to generate more revenue from EXISTING customers, than you will be acquiring
new ones. This is a very fundamental business/marketing principle.

Low efficiency -

If your business requires any type of customer support, the price for free
jumps dramatically. Resources would be better spent servicing pre-qualified
leads.

Paying customers are customers that value you. Doesn't that just sound like
its a nice thing? I know we ought to work hard for our customers, but if you
ENCOURAGE people to place no value in your service, you are asking for trouble
no?

\--------------------------

So seeing as how my business is not launched yet, these are all just theories
in need of testing. They also, as I said, may or may not apply to certain
industries and products. But overall I think its worth mentioning.

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13ren
How to enforce the division between free and premium?

I guess you choose a natural line, that doesn't need explicit enforcement -
like 300 photos on flickr. There's no fuzziness about whether you have >300
photos or not, and the consequence of the older ones disappearing is gentle
and non-punitive.

You can do the same thing with a software license, by having versions with
different functionality - feature subset, capacity limits. Some companies have
a "community" version that is free.

He's also talking about models where you benefit from the "free" users - for
selling software, bug reports and feature requests are valuable information,
for product quality and market needs.

One danger is that if you whet people's appetite with a free version, you can
be priming them as fuel for a free/open source competitor! E.g. Photoshop
_enabled_ The Gimp; Unix vendors _enabled_ Linux. This happens if they really
need/want some feature in the premium version, but it's too expensive for
them.

Maybe this concern doesn't apply to retail/consumer subscriptions because they
aren't expensive; definitely not worthwhile anyone creating an open source
competitor in the first place; and not targeting programmers (who could create
a competitor).

------
13ren
As a software vendor who wants to be benevolent, but not rip myself off, I
really like this about Freemium: _do “good” and “well” at the same time_. (see
links to pg's "be good" at the end)

But for selling software, if you were truly benevolent, wouldn't you give it
all away for free? Denying people who can't pay reduces the good you are doing
- doesn't it?

Maybe an answer is that there's nothing wrong when people pay - because then
they _do_ get the value you created. It's only an issue when people cannot
pay, and you deny them, because it's only in that case that your potential for
doing good is unfulfilled.

I think the latter case only happens when (1) your prices are too high for the
value particular users get from your software; or (2) too high for their
wallet.

I think the solution to the first problem is to price your software (roughly)
in proportion to the value customers get from it. E.g. "per seat" or "per
server" or "volume-base" pricing does this. It's better to under-price than
overprice (in reality, there's a huge range of values that customers get from
a product, some get much more value from it than others - if you price too
low, some get a fantastic bargain; too high, and you deny some).

For the second problem, some kind of charity version is appropriate, where you
give it away to someone who just can't afford to pay for the value they would
get from it. e.g. student versions. In economic theory, a loan would probably
be appropriate; but a gift is nicer and simpler.

These problems become simple if your software actually helps people earn or
save money themselves - then it's a non-issue that they can and should pay for
it.

essay: <http://paulgraham.com/good.html>

video: [http://www.omnisio.com/startupschool08/paul-graham-at-
startu...](http://www.omnisio.com/startupschool08/paul-graham-at-startup-
school-08))

~~~
pchristensen
Balsamiq wrote a good piece about what to do for case #2:

<http://www.balsamiq.com/blog/?p=382>

~~~
13ren
HN discussion thereof: <http://news.ycombinator.com/item?id=337821>

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pchristensen
He says that Open Source + Freemium provides marketing + development, but that
you need a premium product that pays the bills. Similar to my argument here:

[http://www.pchristensen.com/blog/articles/freemium-isnt-a-
bu...](http://www.pchristensen.com/blog/articles/freemium-isnt-a-business-
model-its-a-marketing-and-trust-strategy/)

------
jpavlik
Good idea, though I'm digging Chris Anderson's journey through freemium on his
blog.

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zepolen
What do you do if the users abandon you?

~~~
axod
Improve your product. If they're not 'sticky' you're doing something wrong.
That said some things will always be high churn - dating sites, house purchase
sites etc - So you'd want to maximize the revenue as much as possible while
you have the user.

