
Principles behind a Freemium Pricing Model - Tawheed
http://www.tawheedkader.com/2010/03/principles-behind-a-freemium-pricing-model/
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lambda
Ick. Those are some terrible principles.

"Anything given for free should only give a taste, at a clearly limited scale.
Not all features should be given out in the free version."

Why? What justification does this have? Especially when network effects come
in to play (and if network effects don't come into play, you're getting the
modern web startup wrong), the value of adding more free users by making them
happy is probably greater than the value of frustrating them with limited
features until they buy a paid version.

Having only a percent or two of your users be paid is fine, if all of the free
users increase the value of your site enough that it's worth it for the paid
users, and the paid users can cover the costs. Being too limiting on free
users is more likely to frustrate them and make them leave than make them
convert to paid users.

I've seen plenty of services do just fine, in which the free users get all of
the same features, and even generous amounts of storage space (or other
appropriate limits), with the paid version only being necessary for extremely
heavy users.

Anyhow, these principles seem to be plucked out of the air, completely
untested, and without even a vague critical analysis (like, maybe punching
some numbers into a few different models and seeing what you get). Why should
we care?

~~~
pchristensen
No, these principles are an excellent distillation of lots of stuff I've seen
elsewhere and gleaned from talking with founders and CEOs.

(DISCLAIMER: if you're assuming a scale business like Facebook or Twitter,
these are indeed terrible ideas. This is for business that make money by
charging their users.)

1) "Anything given for free should only give a taste, at a clearly limited
scale. Not all features should be given out in the free version." - this is
important because you don't want to cannibalize your paid users. If someone
likes your product enough to pay for it but everything they need is in the
free plan, _they're not going to give you any money_. The reason airlines make
coach seats so cramped isn't to make more $$ off of coach tickets, it's to
ensure that highly profitable first and business class customers pay a lot of
money to avoid uncomfortable coach seats.

2) "There should be a 'recommended' plan." This makes buying easier. Don't buy
the el cheapo plan and regret it, don't get ripped off by the big one. Happy
medium, no thought, bingo.

3) "There should be a 'cheap' plan for the skeptics, that includes all of the
essential features but at a limited scale." Some people just don't need what
the recommended plan includes. For Wufoo, the middle plan includes multiple
users, unlimited forms, and payment integration. I just needed a fourth form
so I took the $10 plan. I love Wufoo so much I had no problems paying that.

4) "there should be a 'hail mary' plan" - see #1. Wufoo and 37s have both said
they make most of their money from the high end plans, even though there are
very few of them. If those customers could pay 75% less and still do what they
wanted, it would kill the business.

5) "customers should be able to take any of the paid experiences for a trial
run." - this is good marketing and accepted practice.

6) "There can be 'filler plans'" - see #3.

Another point from my experience. Unfuddle offers source hosting + issue
tracking + wiki, etc. Here are their plans:
<http://unfuddle.com/about/tour/plans> . The micro plan would have been fine
but I wanted SSL since it's for my business. It's important enough that the
extra $15/mo was not a problem, even though it's a blatant pricing tier move.

If you're really creating value (as opposed to your users creating the value
like in Wikipedia, HN, etc) then people will pay for it. Unless you give it
away for free.

PS: A good article on what to offer in your pricing tiers is
[http://www.sachinagarwal.com/setting-pricing-for-a-
startup-t...](http://www.sachinagarwal.com/setting-pricing-for-a-startup-the-
rule-of-80)

~~~
theBobMcCormick
They're not principle. They're at best, guidelines. Things that have worked
for _some_ people, but might not work for others. It's also important to
realize that completely different approaches have also been successful.

Take your example of unfuddle.com for example. Their model seems to be working
for them, but it's quite a bit different than the pricing model used by GitHub
(as another example), which also seems to be working. Github gives out a heck
of a lot more than a taste for free, but have still managed to find a pretty
effective approach to market segmentation.

I think it's also pretty important that in most cases, the "taste" you give
out for free, is a big _enough_ taste to be enough for the customer to want to
bother tasting. Otherwise you're not _really_ using a freemium model, and you
really aren't offering much more to the customer than you would if you offered
them a slick powerpoint and a demo site.

~~~
pchristensen
Github hosts a lot of your code for free _as long as you're ok with everyone
seeing it_. If you want to put your company's source on it, you need to pay
for private. It's an even clearer pricing tier segmentation than Unfuddle's.

