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How to Convert a Free User to a Premium User (chagency.co.uk)
206 points by cuu508 7 months ago | hide | past | web | favorite | 102 comments



The article doesn't answer the most important question about the fremium model -- how to balance it? Because the best possible conversion rate is only possible when the fremium is balanced correctly. I've been experimenting with fremium models for a few years and understood that the key to balancing freemium correctly is to precisely understand the value that your product creates. Then the balancing becomes simple: if a user doesn't see much value in the product then it's free. If the product creates significant value for the user then it's premium.

Giving away for free a product that creates significant value is charity.

Trying to charge a user for a product that offers little value will limit your user base and market awareness.

If you don't understand exactly the value your product creates then you are in trouble and not being able to balance fremium correctly is only one of the problems in this case.


We attempt to do what you describe: charge users for whom we create lots of value (power users), and give it away for free to others (casual users).

The difficulty is that if you want word to spread among communities of people that contain your power users (and would-be power users), then by charging them money, you're constraining growth in those key communities. Any thoughts on how to deal with this specific tradeoff?

I'd be interested to hear more of your insights, especially about how the balance might change over time. Do you give away more for free in the early days, to raise more awareness? How do you know when it's time to stop giving it away for free?


>The difficulty is that if you want word to spread among communities of people that contain your power users (and would-be power users), then by charging them money, you're constraining growth in those key communities. Any thoughts on how to deal with this specific tradeoff?

We gave away premium licenses for free (no strings attached) to some socially active power users. It helped us to increase awareness.

Also, I found that premium users are more loyal in general and more willing to share the knowledge about our product.

>Do you give away more for free in the early days, to raise more awareness?

We surely did give away more for free in the early days. Partly, because we still figured out the product/market fit. As we pinpointed the PMF and added new features we periodically rebalanced the free offering. Since many new features became also available in the free edition we reduced some limits and capabilities of the free edition.

>How do you know when it's time to stop giving it away for free?

We never stopped. We still have a freemium model [1].

Overall, we try to keep the ratio of premium to free users at around 1:5. With my previous product, the ratio was 1:50 which was too unbalanced as I realized later.

[1] Comparison of our free/premium editions: https://easymorph.com/buy.html.


How much do you think the ratio of free/premium should depend on the cost of providing services? Obviously if there are large hard costs associated with each user, the ratio can only be so high. But if there is a low cost of service to free users, what's the next step in figuring out the right ratio? Is 50:1 always too high?


I believe the answer is not in the cost of providing service but rather if your product creates value more than its price or not. Just a few questions to think about: why are there so many free users? Is it because the premium can't provide enough value for them to justify purchase? Is it because the need in general is not significant so no matter how good your product is its conceptual value is not significant? Is it because the free users simply are not aware how to extract more value from your product with the premium version?

I suppose having answers to such questions would give a better understanding of the most efficient free/premium ratio.

Feel free to reach out to me by <username> at easymorph dot com for a chat.


what the hell, I love your beeline reader!


Curious to know if you've seen/used it before, or if you just saw it now. FWIW, we have a server-side widget that can be installed on blogs, in case you're interested. Helps maintain attention, and a study done by CNET found that readers were 35% more likely to finish an article when reading with BeeLine.


saw it now after reading your comment. where can I read more about the server-side widget? you have to add it as a wordpress plugin


We have some info on the Partner page [1]. We are looking into making a WP plugin but have to figure out the IP issues related to different avenues for distribution. It's been deployed on WP pages as a JS widget already, including http://unreasonable.is. I don't know how much more trouble it is to do these manual integrations than having a manually-distributed WP plugin.

http://www.beelinereader.com/partners


let me know when it's available as a WP plugin! should I drop my contact in the partners page for that?


the article is aimed at someone who already understands what value their product offers. I get where you're coming from. The way I think it should be balanced is by charging a shitton on the premium side - so much that it covers the cost of running all this freemium.

Yes, not everyone will be able to do it. Yes, it's way way easier to do so in a blue ocean. I do branding work as part of my agency sometimes, so I definitely feel what you're saying when it comes to "free is low value, premium is high-value"

To find the balance is to experiment, just like I'm 100% sure you've seen along the years. I'm not advocating for charity, I like businesses, making money and unlocking value. The point of freemium was to give equality of opportunity: if a business is using your product, they're starting something.

By offering them the chance to have a lean start, eventually when they get to win (because that's why they use a product, right? To create more value, either financial or of some other kind), they're already locked in to your service and grateful for you helping them in the beginning.

And that's not only about new businesses. It can be applied to big corporate companies that start testing a new thing — obviously they're going to go with the less stressful and time-consuming option (if there is one) and test it at a small scale before biting the bullet


This article really resonates with me: it puts into words how I've been feeling about handling SaaS pricing and product features.

My main takeaway is: don't squeeze money out of your customers by severely limiting the free plan. Focus on delivering as much value to your users as possible. Help them grow so you can grow together. You will get happy customers who will be happy to recommend you, and happy to pay for your service.

Cloudflare, one of the examples mentioned in the article, is also a hero of mine, in terms of how much value they offer for free.


It's also not even completely altruistic. The free accounts on Cloudflare serve as an incredibly diverse source of first party signal intelligence, which directly impacts the quality of the offering they're able to provide to paid accounts.

The fact that there's at least nominal value to Cloudflare in having me as a free customer gives me confidence and reassurance in using their product, as it lends credence to the long term availability of my free tier account and that I won't suddenly be the victim of a shift in their marketing and sales development budget.

I'm not sure what the right term for that type of incentive alignment is, but it reminds of me Geico auto insurance. As a business, their goal is to provide a long term and stable source of float to Berkshire Hathaway[1], not quarterly profits. To do that, they've optimized their business to capture and retain as much market share as reasonably feasible. Their rates are truly reflective of the actuarial expectations of insuring you - there's virtually no profit margin baked in because that could prevent marketshare growth, and you won't get bitten by shady exclusions buried in the fine print that you only find out about when you try to file a claim, and you won't get hit with an unexpectedly huge rate increase at renewal time due to a slightly worse than expected quarter and the need to engineer short term profits. The "gotcha" with Geico's pricing model is that they're using my business as leverage for other purposes (premiums as float to provide leverage to BH).

I do a lot of work in optimizing monetization strategies and developing/optimizing business processes, so I may be an atypical consumer. But I have far greater adoption of services when I understand the value drivers of the relationship. If you're not directly making profit off of me, I'm either a marketing expense in your acquisition process or you're using our relationship to derive profit elsewhere. If I'm a marketing expense I'll try to avoid building reliance on your product into my life because the stability of our relationship is unknown. And if you're deriving profit from our relationship and I don't understand how, I'll default to assuming an adversarial relationship where either "I'm the product" or there's a hidden catch coming in the future. Whereas if I know that you're not directly extracting profit from our relationship, and I understand how you're indirectly driving profit from our relationship, I'm far more likely to trust you and integrate your product into my life.


" If you're not directly making profit off of me, I'm either a marketing expense in your acquisition process or you're using our relationship to derive profit elsewhere"

Or there's the 'conversion option'.

A freemium user at any given time has a probability of conversion, and that probability is an option on future cash-flows.

Surely, the probability is highest somewhere near the start of use, but not right at the start, as most users probably start with freemium anyhow.

With products like Dropbox which are in some cases 'shared' - there's a material network externalization as well, which is a probability that a freemium account will bring in others. This goes beyond referral/word of mouth to the extent that the product is naturally networked.

For this later reason - social media sites are almost always free because the economic potentiality of the network beyond 'you' is always considerably greater than 'just you'.

Also, as you hinted at in your Geico example, is that there economic realities to incumbency and market share. Once something becomes a market leader and the 'de-facto' option, then there can be incredible leverage, especially in networked situations. What is the current alternative to Facebook today? Not much.

Obviously the dynamic changes once market share is established but before that, there's an impetus keep prices down.

Venture Capital is keen on that to the point wherein one might consider that VC money is just really a form of 'economic dumping' , i.e. money getting thrown into markets to sell stuff below market value to obtain market share. It's illegal in some ways!


The 'conversion option' is just a bottom of funnel component of your acquisition strategy, and the costs to support those freemium users is still a component of your marketing spend.

For established marketing channels/user segments, you should be able to identify your response curves and probability of conversion at each stage of your marketing/acquisition funnel, including from freemium to paid user. If freemium conversions is a component of your sales process, you should absolutely be attributing the costs associated with supporting freemium users towards marketing, net any freemium-specific revenue streams such as ads. It's a fairly substantial component of the fully burdened cost per acquisition, and by allocating the expense towards marketing rather than diffusing it into operations, you get a much more actionable view of your true CPA. Being able to do so at a granular level requires putting in effort to integrate your marketing analytics with your operational analytics. But even just looking at it in aggregate is beneficial to understanding acquisition costs.

Network effects complicate that calculation a bit, depending on the nature of the network effect. Freemium Dropbox users sharing files could lead to net sign ups, as you mentioned. But the value from that is incremental user acquisition, and is still solidly a component of your marketing/acquisition costs. Contrasted with your social network example, where there is intrinsic leverage afforded by the size of the network that's independent/distinct from the potential to drive incremental user acquisition.

VC is its own beast. As you said, it's essentially a form of economic dumping. They prioritize growing market share first, and identifying network effects and associated leverage potential after the fact. Only after all that do they really mature their business model, and does it make sense to try to understand what component of network effects is a marketing benefit vs. a product benefit. Uber is a perfect example of this - their original pitch[1] was very solidly as a taxi app, and one that used exclusivity as a selling point no less. Virtually all of their pitched areas of growth were around potential for optimizing personal transit, with only a single mention of branching out their infrastructure to other location based services applications. Now they've distanced themselves as much as possible from their identity as a taxi service and repositioned themselves as a logistics and transportation juggernaut. And the ubiquity, availability, and consistency of their network is a core component that enables that product identity.

[1] https://medium.com/@gc/the-beginning-of-uber-7fb17e544851


You know it, you're a smart dude

> If you're not directly making profit off of me, I'm either a marketing expense in your acquisition process or you're using our relationship to derive profit elsewhere.

That "elsewhere" might be the word-of-mouth on steroids that I talked about in the article.

Send me an email, tell me more about what you do, interested in hearing - daniel@chagency.co.uk


> That "elsewhere" might be the word-of-mouth on steroids that I talked about in the article. I'd argue that still falls under being a marketing expense. Word of mouth on steroids is a fantastic thing, especially so as a strategy for rapidly generating market awareness and validation of your product. But after that initial validation in the market, it's entirely possible to find your business in a position where it no longer get much value from more word of mouth. Particularly if you've shifted from a passive to an active sales org or shifted upmarket to enterprise sales.

Optimizely[1] is a solid example of that. They used to have a free Starter plan, and had priced plans that scaled from hobbyist pricing level through to small/medium business pricing levels. They've shed all of that at this point in time, and now have three unpriced plans listed on their site and an enterprise sales process could rival Oracle or IBM in the level of self-assured salesmanship and abrasively aggressive price discrimination/discovery. Having used them at a previous company (starting with the free plan and moving to a ~$400/month plan), I was pretty shocked when I reached out to them more recently to adopt at a new company. Budgets less than $50k/year aren't worth more than a one-liner "no thank you" from their sales staff, budgets between $50k - $100k may be enough for them to do you a great favor in allowing you to become a customer, and budgets above $100k/year will at least get them on the phone long enough for them to tell you what the price floor is for your industry and company size (with actual usage volume being next to irrelevant). Word of mouth on steroids became irrelevant to them to the point where they completely shed not only their free tier but also all of their legacy small/medium business customers, too. And it didn't actually hurt their business any, and likely helped it in the eyes of the high margin customers they're going after now.

Contrast that with Cloudflare. Offering a free tier has real costs associated with it. But those free accounts also serve a valuable purpose to their product, and the word of mouth benefits are just icing on the cake. A core selling point of their product is the advanced threat detection and security capabilities that are enabled by the sheer size and scope of their network. The loss of their free tier customers would drastically reduce the visibility they had and in turn degrade the offering to their enterprise customers. Their free tier is a fundamental component of their business/product itself, rather than just an acquisition/marketing/pr cost. Which insulates me as a free user from feeling like the rug is going to get pulled out from under me at any moment when their sales strategy shifts.


The optimizely story was also a slap on the face to me. Maybe their business justifies it, but throwing away your paying customers just feels gross to me.

On the bright side, I would never have created an open source alternative[1] without this happening, so ended up with a better solution for virtually free and hopefully helped others in the process...

[1] https://github.com/Alephbet/alephbet


you mentioning Cloudflare out of all the given examples is the proof that they're giving out a lot — hence why I said I love them despite never using their service

"You will get happy customers who will be happy to recommend you, and happy to pay for your service." — and some of them will become friends. we're talking long-lasting friendships because you helped them get off the ground

thx for the comment!


I thinks the way this ends up working in real life is, know how much value you're creating for your users and find ways to profit that keep them in the black. For many folks, being able to build playlists containing almost any don't you can think of is enormously valuable. And the elegance of advertising in this situation is, those who use the service most end up "paying" more for it anyway through ads. When they're getting enough value out of it that the ads become annoying, switching to a paid tier quickly becomes a great bargain.


That's one way. Another way I was thinking of while reading your comment is something along the lines of "bringing so much value for free, that eventually when they're asking for something from you, you'd feel guilty not to help".

Happened to me with an older guy whom I took advice from. He helped me a shitton without asking me. I'd often tell him "how can I help, you're offering so much free stuff to me". Eventually, he asked me to become business partners in a venture — I said yes willingly but thinking about it in retrospective, there was no way I could say no

What that means at scale could be after a product/online person helps you with a shitton of free resources/content, you'd feel guilty not to pay them back by donating to one of their fundraisers — see Wikipedia

They’re free as fuck and you’ve seen the “please donate so that we can keep it free”. I know they’ve got:

- over $80m (million dollars, yes) in donations in 2015 - assets worth around $100m in 2017 - probably even more due to anonymous donations (and if you’re donating a lot you want to be anonymous)

And I still have absolutely no damn problem with them asking for money. Yes, that’s revenue on top of which there are expenses (a huge bill, given how much they’ve got to cover).

They’re transparent, they don’t hide these figures I’ve just posted and that’s totally fine. Surely they must be in top 1000 value sources of the modern world.

I think it’s not shame that gets people to donate to Wikipedia but, if anything, guilt. I’ve helped you so much I’ll guilt you into returning it, at least to a degree. I think this is the next wave. And then everyone will be doing that (because making someone feel guilty is a flaw, somehow), it’ll be the old-school and we’ll find something new.

But hey, in the grand scheme of things, at least we all started being better by providing value


Well said


  My main takeaway is: don't squeeze money out of your
  customers by severely limiting the free plan.
Seems to me how well offering a free tier will work depends heavily on what your product is - and whether it provides a logical place to separate the tiers so users are motivated to pay without losing the goodwill the free tier aims to generate.

For example, if you're a SaaS version control system, it's easy: Charge per-user-per-month for private repos and corporate-single-sign-on-system integration.

Boom, no hassle or difficult sign-up for free tier users, practically every company with more than a handful of developers has to pay, companies with 100x as many employees pay 100x more, no need to annoy free-tier users to push them onto the paid tier, no semi-permeable paywall where users can clear cookies or open multiple accounts.

But if you're a social network, or a tool for debugging regular expressions, or a chat app, or a newspaper, or a streaming music service? Much harder to draw such a tidy line.


Please don't use code blocks for quotations. Reading them is terrible on mobile.


But wait, isn't the biggest social network the perfect example? Made it free for everyone, gathered so much attention

But when you want to advertise, you'll have to compete with so many others, hence the bidding.

One could argue the "you're the product when the product is free", true but the equality of opportunity is there. And the cost of entry is 0.


There's a difference between a product with two tiers and a company with two products. I would not say that Google Search was a free tier of Google AdWords, even if every AdWords user is also a search user, as they're different products.

Likewise, there's not a paid Facebook Premium tier or a paid Instagram Pro version.

The closest things to social networks that have a paid tier within the social media product are the likes of Tinder, Strava and perhaps LinkedIn.


> “Provide incentive for prospects to sign up for freemium but do not provide too much value so that free version of the product is enough.”

For me, Dropbox, Spotify and GitHub all do this - naming them as examples of companies that don't is plain wrong to me.

Dropbox: 2gb of storage is nothing (weird and a bit sickening, but still).

Spotify: The ads experience in Spotify is probably one of the worst user experiences I know - so no real value here.

GitHub: no private repos for free users (might have changed?) made me choose Bitbucket. No use without private.

All in all, I don't really agree with the article: I actually do believe that a not-amazing-but-still-great experience is the way to go. See: Asana. It's OK++ for free, but I pay because it's better when I pay.


Maybe in your opinion these are all true because you seem to be a "power user" of any service you use. But for the large majority of people:

- 2GB is more than enough for Word documents and a few pictures.

- Listening to ads is totally normal because what's the alternative to Spotify? Radio.

- Most programmers have a job that pays well (and if not, they're in education), so they just need an online git repo for their hobby open-source projects.


A good alternative to Spotify is Deezer.

Instead of ads, in their free tier, they make me listen to sponsored songs by artists I'd never have heard of.


> - 2GB is more than enough for Word documents and a few pictures.

But as soon as a non-free workgroup account shares its files with you you loose all your free space forever.


True, when it comes to radio, we don't have the luxury of complaining about ads. Sure, you can switch to another station but what if you're driving...?


Press a button on the steering wheel to switch to playing music off my phone via Bluetooth?


I'm cheap. I don't use Dropbox (I have some very old documents on there and will self-host a Nextcloud some time or even rent one)

I use Spotify with the ads. I learn to ignore the bad ads like ads on the radio. These are rarer.

When I work on a private project large enough for it to need a repo, I'd like it to be public, so I have no problem with Github.

I am however subscribed to Notion.so since yesterday, after running into the 1000 blocks limit after multiple months of using it. I considered for a long while, but found that it does provide good value over all.

This is by far my favorite model (and would probably get me to pay for Spotify): A good free plan that gets you addicted, but runs out after some time (Yes, like a trial, but I wouldn't actually like the feeling of that).


> I am however subscribed to Notion.so since yesterday, after running into the 1000 blocks limit after multiple months of using it. I considered for a long while, but found that it does provide good value over all.

> This is by far my favorite model (and would probably get me to pay for Spotify): A good free plan that gets you addicted, but runs out after some time (Yes, like a trial, but I wouldn't actually like the feeling of that).

Thank you, happy to see confirmation in regards to the idea of "emotional connection" from the article.

Any lines that stood out for you?


I’m exactly the same! Starting paying for Notion once I’d received the value upfront and felt like paying was worth it.

Dropbox - still on free after getting lots of free space through promos

Spotify - family account

GitHub - paid for personal until the recent change

My takeaway, none of these freemium methods are “bad” but Notion felt the best as a consumer. I talk about Notion way more than the others and I believe their pricing model makes that possible


> Dropbox - still on free after getting lots of free space through promos

You didn't transfer any monetary value to them but surely helped them. That's a win-win. Amazing

> My takeaway, none of these freemium methods are “bad” but Notion felt the best as a consumer. I talk about Notion way more than the others and I believe their pricing model makes that possible

You mean the fact that they're charging per member per month at the topmost level? Or simply the low delta between plans?


Spotify with ads also has terrible audio quality


GitHub offers private repos for free users now (as of about a month ago). It is limited to three collaborators though.


Also, before that Github offered free pro accounts for students.


Unfortunately they denied my application when I tried to get one during my college years.

I felt envy seeing some my peers (who had no existing repos, or far fewer than me) get free PRO accounts while github probably though I should just buy one.

Long story short, I created a bitbucket account and later made heavy use of gitlab.


That's crazy. If you don't mind me asking, why did your application get denied?


Love seeing that! Maybe, just maybe, they do that to enable the Da Vinci example given in the article? Students that might be creating the next Facebook-like company in their dorm? Who knows


I used Dropbox’s 2GB for eight years before becoming a paying user.


> “Provide incentive for prospects to sign up for freemium but do not provide too much value so that free version of the product is enough.”

That was a quote from another Quora answer. The article was my answer to a Quora. I found that quote corny and far from what a startup should be. It's not what I believe in.

As someone else pointed in the comments, you're a power user. And you're annoyed by ads — but as mentioned in the article, some people prefer paying with time. And Spotify is okay with that. 2GB means is more than enough to change the word — a document can have only a few kilobytes and be the basis of the cure for cancer.

Same for GitHub. What I'm advocating for is giving equality of opportunity and then capitalising on people only if they make money out of it. "Not amazing but still great" is the way to go for short-term. But too many people are stuck in the short term, even though they've met their basic needs.

And what I'm saying is not limited to "poor people". I know a lot of rich people who like to start lean simply for the sake of seeing proof of concept. They have millions in their bank yet they ask their cofounder to chip in £5,000 on the idea.

In this sense, they'd benefit from equality of opportunity given by services — once their idea is validated (maybe after 5 tries?), they'll bring their money and power. But they'll start with the lean version, if possible


Fuck spotify. Their ads were so repulsive that when I finally did want to subscribe to a music service, I went with Apple Music instead. Partially out of spite.


A few days ago there was a Medium post from the founder of GumRoad where he talked about companies create value but only ever capture a small portion of it. Combined with this post, I think there is an argument for always doing whatever creates the most overall value between the company and its users. Worry about capturing it later (as long as you can survive) but if a choice increases the company's overall value creation, it is probably the right choice. It makes a simple decision out of many complicated scenarios.


thx for the comment. yep, it's exactly about worrying about how to capture the value later. but through equality of opportunity, more often than not it will make its way to you (this captured value)

as I mentioned in the article, it might be hard to grasp for someone who didn't experience it


Nice article, bad examples.

Spotify restricts the amount of songs you can skip to 10 in the free version. And next they play you an ad where they stage the (premium) feature of unlimited skipping as some revolutionary game-changer for music players. This anti-feature has literally no other upside for Spotify other than annoying users into subscribing. Which is all completely fair, since it is free after all but I can't find any mechanism which is more to the point of

  “Provide incentive for prospects to sign up for freemium but do not provide too much value so that free version of the product is enough.”
I'm on the fence about the assessment of Dropbox as well, it has a load of dark patterns like nagging or bait and switch even and especially for paying users, so I'm not sold it wants to be my friend...


> “Provide incentive for prospects to sign up for freemium but do not provide too much value so that free version of the product is enough.”

That was a quote from another Quora answer. The article was my answer to a Quora. I found that quote corny and far from what a startup should be. It's not what I believe in.

As the article mentioned, the Spotify ads are for people who prefer paying with time. If your time that's being reaped by the ads is worth more than the $10/mo, then you're given the option to pay it.

I can't see anything wrong with what they do when looked at it from this POV. I understand where you come from, the "annoy me until I subscribe" but think about 3rd world countries where $10/mo mean way more than they mean in the US. They'd very very much rather pay with time than with currency


Historically, some spotify ads would straight up say they were being annoying to get you to subscribe. "if you subscribe you don't have to listen to these ads anymore!"


I believe they still do, at least the Dutch advertisements.

Personally, I am more than happy paying for Spotify family.


The elephant in the room is the lack of true dynamic pricing in SaaS. Dynamic pricing optimizes value capture and at the same time unlocks more value to users who otherwise would be stuck in the free tier. Of course, dynamic pricing is not easy to implement and might result in perceived price unfairness. But done right, you can immediately increase your revenue and drastically reduce the number of free users. True dynamic pricing involves a mechanism, such as the Vickery auction, to measure a user's maximum willingness-to-pay instead of A/B testing different price points. In an ideal world, every active user pays a portion of their maximum willingness-to-pay (perceived value).

Disclaimer: I'm the co-founder of Veylinx, a platform to measure maximum willingness-to-pay of users.


Veylinx looks interesting, but no pricing info on your website I could find... Is it also part of extracting maximum value? ;-)

In all seriousness though, I think your service is something I'd be curious to find out more about and try. But we're a very small company (B2C in higher education), so upfront pricing really helps me gauge if it's something I can realistically explore, or if it's those typical "enterprise: call us" scenarios, then it's just never going to happen.


Sent you an email.


Regarding the dynamic pricing, that's what I address in the next day's article, following this. I was saying that I'm hoping this way of conduting will be the standard more and more as:

1. It’s absorbed into culture as good practice. 2. It’ll be easier to accept micropayments, which I’m sure cryptocurrencies will take us to.

Emphasising point #2.

I got your email, I'll answer in a bit, thank your writing!


I have noticed a lot of education related subscription services only offer 1 year subscriptions when I only want to try it out for a month first. I guess its because a lot of users won't continue to subscribe for the year so this way makes them more money but I end up not subscribing at all.


As an end-user - make it cheap and as frictionless as possible (and to providers, my take would to be sacrifice pretty much anything on this altar).

I'm not a provider, so can only provide anecdotal advise.

1) Google Drive. I started out (along with I suspect most people on Drop Box). DB blew my mind - it was novel. Then google rocked up and did the same thing. Then I got more capacity for stuff like "doing a security checkup", "integrated with gmail" then "free uncompressed 4k off your new Pixel phone" - and now I pay them cold, hard, money each month. Drop Box just sat there doing little in the meantime apart from asking me for money. Think it all boiled down to me considering them all the same, but google kept me engaged, gave me more every so often - so when I needed it, they were what I was using day to day.

2) Plex. Liked the free version and started using it. More importantly started finding free version kept on creeping into my stack-solutions I was building. "Free really good, but would really find that 'premium version' useful" Then bit the bullet on a "discounted unlimited version for life". Know for a fact there are 4/5 people out there that did the same based on my recommendation/server, and presume it's organically growing on from there.

3) Feedly. Switched to it as a replacement for Google/RSS Reader. I love it to bits and use it daily. Never given them a cent. There is a premium version for $5 a month, which has features I don't need. Seemingly no way to give them beer-tokens, a dollar a month. THE most frustrating use-case. All I can do is recommend them to others, and hope one of them pays (and T&C change doesn't leave me moving on and regretting my recommendation.

4) Spotify. I just paid from the start. Never even tried the free version. I'm 'happy paying'. Maybe similar to Netflix. I'll hand over an extra few dollars for a family plan or a 4k one - but I'm in. Please don't screw me, as the pain of moving isn't something I'm planning for my next month.

5) Patreon. I'm pretty sure I dislike everything about them - but they do provide a very easy/universal way to send a single dollar a month to somebody I admire. I pretty much loathe the politics associated (I'm a defend free-speech even though I detest it) sort of a person. BUT no better option yet (wanky youtube $5 a month for an icon in chat, is not what I'm looking for).


Two of your examples are tightly correlated to some other articles of mine.

The Google Drive example — I said this:

"If you’re in a monopolistic environment and you’re successful, others will come. You can start building the experience right now in order to widen the gap between the next newcomer and you."

https://chagency.co.uk/blog/experiences/what-makes-or-breaks...

Dropbox was in a monopolistic environment, you called it as well saying it was novel. In the meantime, GD came and ate them. Instead of "staying there doing nothing and asking for money", they had time to widen the gap between them and others.

Where are they nowadays? They're doing good but they had to remarket themselves towards artists and creatives. I'm not sure where they would have been today had it not been for Apple, Amazon and Google coming up but that's the situation.

> 5) Patreon. I'm pretty sure I dislike everything about them - but they do provide a very easy/universal way to send a single dollar a month to somebody I admire. I pretty much loathe the politics associated (I'm a defend free-speech even though I detest it) sort of a person. BUT no better option yet (wanky youtube $5 a month for an icon in chat, is not what I'm looking for).

I've only briefly read about the controversies with them and I know Jordan Peterson is looking to create his own Patreon-like platform. Which leads to my (so far two-part) posts around "Don't hold your user hostages"

https://chagency.co.uk/blog/increasing-user-retention/dont-t...

In this case, Patreon holds their users hostages — just like you said, you dislike everything about them but it's the only far ———— so far. As a consequence of the controversy (i.e. we, Patreon, do this), at least one more platform will come out. And the guy has some following.

Thx for the comment!


> When I pay them I do so happily as I support their cause.

This surely happens, but if it were common then wouldn’t donationware be more successful than it is? I have used various pieces of freeware/donationware over the years but they all seem like they’re just scraping by.


What I was touching is when I move from a free plan to a paid plan. When the company took the risk. I know a lot of rich people who like to start lean simply for the sake of seeing proof of concept. They have millions in their bank yet they ask their cofounder to chip in £5,000 on the idea.

So the company offering the product took the risk (and the cost associated) of seeing if the idea works. But then, what I say is that they should charge enough on the premium to cover for all the freemium.

I didn't have in mind donation systems


You replied to several comment with this anecdote about "rich people who like to start lean...They have millions in the bank yet ask their cofounder to chip in £5,000 on the idea."

What's the point of this illustration? Are you saying this is a jerky thing for rich people to do? Or is there some other lesson here? I'm honestly confused, and it's weird to see it repeated through so many threads.

> I didn't have in mind donation systems

You say to go as free as much as possible, to get people "on your side". This is precisely what happens with donationware. But people get PISSED when donationware turns paid. They don't jump for joy and open their wallets. If this is the case with donationware, why would it be different for freemium products?


Nono, don't get me wrong. The point with rich people (which I've reused because I thought it fit those conversations) is that even if you have millions in your bank account, you imagine businesses with their own 'pots'.

I.e. even if I can invest say £100,000 into this business to jumpstart it, I'll first see if it can make some money by itself, just as if I've have had nothing. So I won't buy the £5,000 hardware (just an example) until I made £5,000 profits. That means whatever expenses the business made are paid from the same pot — the one with money the business generated.

Maybe after the business reached a certain threshold (and thus proof of concept), these millionaires that I've known will properly invest.

If that still didn't make sense, imagine you'll be looking for investment. You won't go and ask for it until you've got proof. In the millionaire case, it just happens to be the same person who's becoming an investor.

Regarding the second bit, I'm saying this: it can also be freemium and at the same time a premium plan. Or more premium plans


IMO, the example would be clearer if you left off the cofounder bit. Otherwise it puts the focus on their relationship and makes the rich guy seem like a jerk.

I still don't see how this anecdote is particularly responsive to the various comments it was used in reply to. So you're saying millionaires want to grow businesses responsibly? Great! What does that have to do with whether you feel joy in paying them money — which was what my original comment was about?


Oh I understand what's unclear now. So here's what I'm trying to connect

1. These rich people like to start lean (some of them) 2. This way of conducting business gives equality of opportunity 3. Therefore, these lean-starters will be drawn unto them and use them. Eventually, when they invest in their own ideas (remember what I said that it just so happens that the investor is themselves?), they bring their big money to this company

Makes sense now?


Honestly, not really. I've read it a couple times and run it by a friend, and we don't understand what you're getting at. But thanks for taking the time to try to explain.


We do something similar to this at Userify / ssh key management (disclaimer: I'm the founder/CEO):

We give away 20 servers for free -- no invoice, no credit card needed, nothing. Once you exceed 20 servers, we charge (it's about $70/month).

You'd think that 20 servers is way too much to give away, but actually about 76% of our servers are on the paid plan and a huge percentage of our customers come from the invitation referrals when people change companies or consult for multiple companies.

(Our pricing might be too low and our product might be a bit too technical and scare off a lot of people who might not even know what SSH is, but for now that acts as a filter and keeps our support costs low; it's working for us, although we'll probably lighten up a bit on the technical homepage in the near future.) Also, the SaaS product acts as a frictionless testing area for people who actually just want to deploy the on-premise version, which accounts for approximately 40% of our revenue.

Our customers like the product and we have grown with many of them from free to paid. We're growing a startup for the long haul and don't have to demonstrate any particular growth rate to anyone.

The advice in this article works. Build something that provides some useful utility to people, and give as much away as you can. Most people will not abuse it and will return the favor as they grow.


And that's the wonderful thing Jamieson, even if people would abuse it, you kicking them is a few clicks away. And given that one provides something of value, the premium plans will cover for them.

So so glad to see you winning with this "strategy" — it's not a strategy IMO, it's the forward way of living and conducting business. I'll send you an email, would like to connect!

> We're growing a startup for the long haul and don't have to demonstrate any particular growth rate to anyone.

That's the ultimate level of power and freedom. I wish you well.

Ch Daniel


> even if people would abuse it, you kicking them is a few clicks away

We take a pretty liberal approach to this :) there are a few companies on the platform now who just create a lot of companies and keep them all below 20 servers (that's pretty easy to monitor) but so far we haven't kicked anyone yet, and there's also a legitimate reason to do that (if you're an MSP and have multiple clients). We just send an email to clarify if we think it's an issue.

> I'll send you an email, would like to connect!

Sure thing - it's first.last @ userify! Great to meet you Ch Daniel and thanks for your nice comment!


I think you meant "who just create a lot of users" (...and keep them all below 20 servers)?

I got mad love for you for doing this. Just tweeted at you but sending you an email now


I love the idea of being generous and having that come back to you. This notion not only works with products but it works in every other part of life. You may not believe in Karma but the vast majority of the good will we put out there will eventually come back to us, at least it is this humble engineers opinion.

As a little self promotion, and an example of this idea, I recently built an app that lets people listen to any article, it uses AI to convert the articles to Audio with some amazing sounding open source models. I decided to give folks up to 30 free article conversions per month and only charge after that, if they really love the product. You can try it here https://articulu.com

I may at some point be forced to lower that a bit because it does cost a bunch of money to run TensorFlow in the cloud, but trying my best to keep the karma goin.


I'm not religious but I love reading about the history and philosophy of religion. Piggybacking on what you said about Karma — it's the golden rule. The intersection of all religions, the bit that's in every. single. holy book.

Do unto others as you would have them do unto you. Do good and it'll come back to you — you're not the one to keep the bill.

As you said, it's something to be taken out generally in life. I wrote about it in another post, addressing publicly the tech CEO and how she/he should not keep the tab. Do have a read if you're interested: https://chagency.co.uk/blog/general/dear-ceo-dont-keep-the-t...

(Please let me know if linking your own stuff is not ok on HackerNews, I just joined the community and it seems lovely)

I'd need the opposite of what Articulu is doing — transcribing my video's audio into written word. Had a look and it looks nice, will give it a try!

Let's connect, how can I reach you?


As long as your posts are useful and insightful I’m pretty sure it’s allowed.

You can reach me right on the website, I put up contact info and it works.

Edit: excellent post by the way, loved it and shared it with some friends. That word of mouth thing is 100% true.


Very glad to hear that. Will get in touch now. Thanks for sharing it!


Random question ever think of selling your voice library as a product as well? You can put "Powered by" for free users and for paid users it can be shown in an "About" page instead.


That’s a great idea, but I’m thinking of giving that away for for free say up to say 1k listens.

We’ll see it’s a ton to build as a side project.


> We’ll see it’s a ton to build as a side project.

If you can make certain parts of the code reusable it will be for the better code wise too. But you know your situation better than me, just sharing a simple idea. Good luck, I would love to learn about ML more, but I don't have the background I perceive necessary to pursue that. Plus I've got other things I want to master (it's an ever growing list) that I need to focus on.


This quote

"By that I mean the freemium model should offer the client the chance to grow — equality of opportunity — and if it does happen that they grow and become profitable, the SaaS starts charging based on that. In a sense, value-based pricing, or at least as much as it could get with a scalable model."

kinda implies that your client is a business ("become profitable"). We have teachers as primary users, and I don't think the general arguments apply to that category of users (although freemium is still a very popular pricing model).


hi guys, I'm very humbled to have my content shared here. I'm very open to any kind of discussion around this topic. Feel free to reach me at daniel@chagency.co.uk


Your description of Mailchimp’s freemium plan is missing, or it doesn’t load in.


Didn’t load for me either, and frankly I find their offering to be maddening, not joy-inducing. Under 2k recipients: free. Over 2k: $780/yr (at least when I was looking at it). This is way too big a jump from free.


Thanks for letting me know. I was just mentioning MailChimp as the targeted audience (tech CEOs) most probably know about the freemium plan, so I didn’t feel like expanding on that.

After I noticed it caused confusion, I added some extra comments in there as well.

I see it this way: I know a lot of rich people who like to start lean simply for the sake of seeing proof of concept. They have millions in their bank yet they ask their cofounder to chip in £5,000 on the idea.

So the company offering the product (MailChimp in this example) took the risk (and the cost associated) of seeing if the idea works. But then, what I say is that they should charge enough on the premium to cover for all the freemium.

Which MailChimp does. I know, $780/yr is a lot — but since they might help you start from 0, literally from ground level, I think it's reasonable for them to charge a lot. I don't know their niche so whether 780/yr is fair or not is up to them

But let me put it another way: if your mailing list is over 2000 people, aren't there more than $65/mo to be made, more than 8 cases out of 10?


> if your mailing list is over 2000 people, aren't there more than $65/mo to be made

If the click-through rate is around 10% and the conversion rate is around 5%, then depending on the price point (and whether selling subs or one-time), then quite possibly no. And even if I can clear $100 in extra revenue/month, paying more than half of that to an email service seems like too much. Factor in the cost of my time in building the emails, and I have to clear closer to $200/mo for this to make sense at all.

And I don't know the precise costs for the higher tiers, but after seeing this taste of their pricing model, I decided they weren't a good fit for me. If I ever end up as a subscriber, it will certainly be through gritted teeth, not the joy that you describe.


Just checked MailChimp and they've got free, $10/mo and up, $199/mo and up

I know it's the last thing you'd want to hear but maybe the gritted teeth bring the nitpick and resentment that I see through the posts


Looks like they have lowered the limit (500 email addresses instead of 2,000) and the pricing (10/mo instead of 60/mo). So the math is roughly the same as when I passed on it before.

As for nitpicking, I think you've got me beat with your last comment. Unfortunately you missed (or purposely omitted) the part about 500 addressees instead of 2,000, hence this reply.


Thanks for letting me know. I was just mentioning MailChimp as the targeted audience (tech CEOs) most probably know about the freemium plan, so I didn’t feel like expanding on that.

After I noticed it caused confusion, I added some extra comments in there as well.

I appreciate it! Any lines that stood out for you?


Thanks a lot Daniel for such an awesome article. It helps a lot for startups like us. Do visit StopSpoof.com Thanks.


Did pay a visit! I'll send an email to get in touch, thanks for the kind words!

Any lines that stood out specifically for you Zakir?


Go further. Give away your entire code base as open source on github. If that will attract a community they will fix the bugs for you. And you can still sell your software to others.

Worried about huge corps stealing your lunch? Use AGPL and I got it straight from Mr Eben Moglen that the corps wont touch it with a 500 foot pole.


This comment has too many American insight I don't have and sounds sarcastic, not sure — if it's not though, let me know what you meant and I'm happy to have a conversation!


If you're in a niche where there are no freemium models/plans, is it still a good idea to offer one? It seems to me that many of the examples provided are of businesses in highly competitve spaces, where free alternatives likely already existed/were being offered by competitors already.


Depends on how able are you to offer that, without more background info it's harder to say. But then it also boils down to intent, just like I said in the article.

You might have created a blue ocean for yourself and say "I don't need to offer freemium". But exactly what I'm trying to reach in the written piece is this idea around the equality of opportunity — "If your intent is to create a win-win environment and give equality of opportunity so that eventually the next Leonardo da Vinci will come from under your rooftop (and he won’t forget that), this is a way to solve the freemium-to-premium user conversion problem."


So in summary, give users lots for free and they'll feel like you're their friend and recommend you to their friends and happily pay you?


Yes and no. Give them free so they can start off the ground. When the 0.01% win (the Da Vinci example), they'll be more than happy to pay you.

Also give them free because word of mouth is on steroids then. To cover up for the big costs, charge the premium enough. That might not be feasible for everyone so in the short-term go for the classic approach. But once you can... boy you should do it


I love it, it's so much more selfless than the titles suggests... and everyone wins.

In retrospect it seems obvious, I suppose good ideas do.


He lost me when he began talking about millionaires supporting orphans.

Wealthy people tend to give less as a percent of wealth.

But the general idea is solid.


Make something useful that someone can trial and feel like they've had enough value from it to pay for it?


Easy, limit their backpack space.


flagged for being an empty page with a spinner.


my website might be slower now because of the influx of users but it definitely loads!


I believe they were referring to the fact that JavaScript needs to be enabled to read anything on the site, despite all the content actually being there. It's just hidden by some annoying <div class="mauer-narrator-preloader"><div class="mauer-narrator-spinner"></div></div>.

Maybe you think the spinner is a better experience than getting a glimpse of the partially-loaded page, but I feel like the browser successively displaying content is a much better progress indicator than some dummy image spinning in a circle.


It's a humble Wordpress theme but thank you for pointing it out — I'll check with my developer, see what can be done. Maybe switch to lazy loading


Thank you.




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