

Babbel dumps freemium for language learning: “it just doesn’t work” - swombat
http://eu.techcrunch.com/2009/11/10/babbel-dumps-freemium-for-language-learning-it-just-doesnt-work/

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swombat
Reposting my comment from TC:

I’m not convinced that Premium (or even Freemium) works all that well for most
consumer products. Sure, there’s a few home runs, but on the whole, the
numbers are just very hard to squeeze any money out of.

10% is a very high conversion rate. Typically, any Freemium (or plain Premium)
product will have somewhere around 1% conversion rate. Let’s say you do really
well and bring in 100′000 new potential users every single month (quite an
achievement for any website, I’d say). With a 1% conversion rate, that’s 1′000
new paying users a month.

Consumers, however, typically aren’t very keen on paying much more than a few
dollars a month (when they’re willing to pay a subscription at all, which is
rarely) – let’s say they’re ok with paying $60 a year. That’s $5 a month.

So with that insanely high amount of incoming users, you’ll have a cumulative
income adding $5k a month. That’s assuming there’s no attrition (good luck
with that). Not much to celebrate. At that rate, assuming no attrition, it
would take you 20 months before you even make $100k/m. With attrition, it’s
fair to assume that consumers won’t stay for even that long, so actually
you’ll stabilise around $25-50k/m. This is not too shabby for a lifestyle
business, but if you’ve taken €1m of funding, that’s not really an option.
Then again, the funding wasn’t from VCs, so maybe that’s ok.

There are always exceptions, things that hit a sweet spot and make crazy
amounts of money from consumers. But those are very few and very far between.
Can you think of any?

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robryan
It's interesting that the article calls into question monetroization because
they won't be making a significant amount of money given the team size.

Heading towards cash flow positive should always be an aim, I don't get how
people think that not charging for something now will magically make the same
people want to pay for it later, if anything the pricing structure should be
there from the start, let users know that you have some value on offer with
your service.

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flooha
_"I don't get how people think that not charging for something now will
magically make the same people want to pay for it later"_

It's not magic. If the upgrade adds value, they'll pay.

It's a marketing tactic which works for some and not for others.

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swombat
_If the upgrade adds value, they'll pay._

If you can convey that the upgrade adds value, and they have budget (or can
maneuver the politics of getting budget), then they'll pay. The fact that the
upgrade adds value (or not) is actually secondary in many cases.

