Employing a Freemium model without having a strong path to the "mium" part (i.e. converting free users to paid users) is a weak model. In this case, it didn't even sound like a real freemium model anyways - a free version and a paid version of the same one-time purchase is a pretty weak place to start with freemium. Better would have been to giveaway the first purchase and then aggressively upsell on an annual subscription offering that included variations for all holidays or something similar.
By offering a free one-time purchase and positioning it against a paid one-time purchase you are making it too easy for people to choose free. Especially when they have to figure out if the higher res and other extras are worth the extra $$. Free is always a no brainer. In this case, it sounds a bit like the OP was giving away the razor and the blades in the freemium version, and better blades in the paid version.
With a little bit more thinking and tinkering, I bet the author could get freemium working to his advantage.
If you can't figure out a good reason to support free users too, then don't. Not every app is suitable for a freemium style of business.
The big advantage of freemium is lower friction. The people who buy your product don't typically need it advertised or explained to them. They've either already got experience with it due to being free users or they will set aside some time to trial you product for free for a while. Beyond that a free product can build up a strong reputation that carries over to the paid versions.
Billions upon billions of dollars are spent every year by companies trying to create familiarity and trust in their brands. Being able to do that with a free version of your actual product is just as worthy of the expense and in many ways a far more honest form of advertising.
If you're having trouble getting enough traffic to run statistically significant experiments, then offering some kind of free tier can help. Of course, these free users will behave differently, but you can at least tell if users will like it even when there's no payment decision necessary.
They don't have to cost you nothing, just little enough that you're net ahead. And since startups that use the freemium model invariably manage to make free accounts cheap, I assumed I didn't have to mention that explicitly.
You can actually induce your own pressure on the free users by changing your product so that a very valuable piece is now in the paid section.
Sometimes you can create your own demand. Have a look at avvo.com. They do it well.
"What matters is the total number of people paying you, not what percentage of your users that fraction represents."
Surely the total revenue from paying customers, relative to the cost of providing service to all users, is what matters^? If so, then this is ultimately a function of the percentage of paying users to free users (assuming cost of servicing paying and free customers are largely similar).
The opening statement of the post, that people who want something for free won't think to pay for it, is something of a non-statement. That free users cost (as the post goes on to argue) is pretty much a given, but it still matters.
^Where (I assume) what matters is a profitable business.
Not necessarily true. The largest costs (especially at small scale) are fixed - the vps/dedicated box/rack/EC2 instance.
Freemium models tend to scale price with bandwidth/storage usage, which would be the largest variable costs. Is serving a million users with barely any data really that hard once you have the infrastructure to serve a few thousand with lots of data?
It's possible that you could have a company that has 1% paying users that's MORE profitable than a company with 50% paying users. The size of the profit is more important than ratio of paying to non-paying, generally speaking. (And of course, in either case you pay real close attention to the conversion rate and try to get it up higher.)
Paul, the notes from the developer is very much relevant and reflect on the model we expect. The values in the freemium model has depreciated. If only you can derive any significant value over time. Dropbox, evernote has already given out the rewards system (towards all). But the one we would like to model is Rovio mobiles Angry birds.
Expecting to get paid on a depreciating model is lunatic. Without any metric over such - this model works, but expecting to get paid on a depreciated value, never does.
Figures from several freemium businesses that I am familiar with suggest that this model works on the 'lifestyle' end as well as on the 'more money than you could reasonably spend in a lifetime' ends of running a business, and I presume on many points in between. The trick is not to lose too much money on your free users and to make them pay in some other way, for instance by selling advertising or by engaging them to promote the product to others.
A Santa letter service strikes me as exactly the kind of thing that people will love when free, but not see the value proposition if they have to pay. Plus they're gonna use it just once.
Combine those factors and yeah I think you're better off just trying to get people to pay up front rather than trying to subsidize millions of free users with the handful that will pay.
On the other hand, many other types of services need to be demonstrated and repeated use will add progressive value that tips the scales to paid conversions that never would have signed up off the bat.
Yeah freemium is often a pain in the ass, but it's popular for a reason.
PS. As far as emails are concerned, people will flag any opt-out scheme, they will most definitely not read your copy, and getting angry about it does nothing but raise your blood pressure. The solution is to use a paid service like SendGrid, manage your reputation, and go opt-in if you're still having problems.
I agree.. it's not like a monthly subscription to something like SendGrid or Pingdom... it's just a fun thing to do once, and forget about. Why would someone want to start paying? I think the OP created something that would solve a business need vs just fun once, he would have had better success
You can't just use a freemium model and expect it to work; there are a lot of considerations. Paying users will see your product almost as an investment, regardless of the amount they actually pay - that's why these people are so much easier to deal with. They feel like they have a stake in your product. The problem is, in order to find these people, you need to let everyone (for freemium) test it.
Free customers are higher maintenance than paying customers.
They can be at times. Yet, if what you're describing is true, then it's probably your own fault. Do you really expect people to click a FAQ link when it's so much easier just to hit reply? Do YOU even read FAQ links other companies send you? I consider myself decently competent, and sometimes I tremble at the thought of plowing through an unorganized FAQ page. A better solution? Have the contact form auto-suggest answers with a double submit, filtering by keywords in their help request. "Does this answer your question? ..."
Many free customers flagged the email as spam!
I'm sorry. If you sent me one of these for a seasonal product, I'd probably mark it as spam as well, if I couldn't find an unsubscribe link. Did you have a link in there? Was it easy to find? Did I need to log in just to unsubscribe? Did you think that just because it's a seasonal "thank you", that you wouldn't need an unsubscribe link? I used to get like 20 "thank you" emails or "happy holiday"/"happy birthday" emails every couple of months, and it's dead annoying. When I couldn't find an unsubscribe link, or it was too difficult to unsubscribe, I just marked it as spam. I feel bad doing it, but it solves my problem.
Honestly, you can get people to agree to just about anything. My last legal disclaimer said something to the effect of "if you press accept, we own your soul." Do I really own the souls (pending existence) of tens of thousands of people? No. Just because people agree to an elongated privacy statement, doesn't mean it's okay for you to take advantage of what they agreed to (-> south park Human Centipad).
So, how do you make a freemium model work? Segment your free users from your paying users. You NEED to interact with both differently. There's a lot of money to be made in freemium, but you can't approach it so recklessly.
1) Users don't read directions. They don't read the directions right on the form, never mind a separate FAQ.
Is it really fair to say the user "agreed" to receiving these? At best I think we can say that they were tricked into receiving them. After completing the cards they were forced to either 1) Throw away their work or 2) "Agree" to receive some unwanted emails about freemium services the author creates.
Doesn't that sound a little sneaky and dishonest to you? If the cost of the product is not cash money, but something else, shouldn't you tell the user up-front instead of giving them an ultimatum after they've already spent some time in your service?
Some might consider it so, but for the most part it's standard practice in the industry to put the benefits to the user on the page, and let them find out about the negatives later after they've invested time and energy into it and are less likely to say no.
I just checked out Facebook: "Your Facebook Timeline: Tell your life story with a new kind of profile. Learn More"
I read the learn more page, there's nothing about violating privacy laws, switching to the timeline so that ads are more compelling, etc. Only after you've signed up to Facebook do they tell you that they've created this "free" service as a way to get your personal information so they can sell it to advertisers, or use your likes to sell stuff to your friends.
I've still never been told by Facebook that they violate PIPEDA and European data laws.
Went to Google, no mention of using your click stream and browsing habits to sell you unwanted ads, and worse, no way to turn them off.
Seems like it's industry standard practice to offer a "free" service so that you spend your time giving data to a company so they can sell it to advertisers. Apparently these companies have employees to pay and servers to buy so can't offer you a completely free service with out getting something from you.
Do I care? Not really, Facebook, Google, get my data, I get a service.
The more relevant point is that the users do not perceive the receipt of future email as something to which they willingly agreed.
In my opinion, the OP brought the spam complaints upon himself by failing to use an opt-in communication model. Following up with an unwanted email shortly after the user used the service would tend to trigger an adverse reaction - it's the sort of thing that constantly spamming sites tend to do.
"I have an opt-out link on that policy page, and I included one in the email I sent right at the top, at the bottom and in the body of the email."
I count four at that point, 3 being in the mail. While I'm with you on the first part of your response and like the final paragraph, the comment on unsubscribing was the result of bad skimming and is - unnecessary.
I was just trying to evoke some thought. If people are opting to flag spam, rather than opt out, then something is wrong. Sometimes there's a disconnect between what makes sense to us, and what makes sense to our market.
It depends on the market. No, I don't have any case studies or anything saying freemium can make money, but I do have anecdotal experience, where freemium completely dissolved the paid market. If you're absolutely curious, fire me an email and I'll get into more depth.
I clicked through your site. There were zero hints anywhere that you were looking to sell anything at all until I had gone through four or five pages to create the card with including the page of questions I had to answer that left little doubt about your future plans. By the time I hit the pay option I felt ambushed, and worse you had spent zero time marketing to me while I was on your own site!
You are 100% right about free customers being much much worse to deal with, I don't envy you there at all. But they don't owe you anything either. With a free tier or trial you're buying an opportunity to market to people and convert them into paying customers, that's all. If you didn't manage to convert that's on you not them, though to be fair it is a very difficult job unless you have a good product.
You got some good experience and learned some things that are quite valuable. People will print out free letters but nobody will buy. Traffic like that at Christmas can absolutely make you some real money - I'd suggest trying again next year with some good quality holiday merchandise and amazon's toy affiliate program. Pretty much every visitor there will be buying toys that month, they are thinking about it right and done right quite a few will consider it helpful.
If you collect emails with an opt-out method you shouldn't complain when some people flag you for spam.
Paying customers didn't unsubscribe because they obviously had a higher level of engagement with the service. Of course free users won't keep track of every service they've signed up for, ESPECIALLY if they didn't explicitly say they wanted to be emailed.
I'm not a fan of freemium either, but this is more of a knee-jerk reaction to a perceived insult than any real insight into the business model.
Well, of course free users cost more money than paying users: they aren't paying! The question is: how many conversions of free to paid users did he get? Because it may still be better to have a business with lots of annoying free users than with no users at all.
Well, of course free users cost more money than paying users: they aren't paying!
You're twisting his words. While it's obvious that free users will inherently incur a net cost, it's not obvious that the actual per-user cost of a free user is higher than that of a paying user. The latter is still a very interesting observation.
I run and manage a very large freemium service, and I will tell you that the percentage of users that convert is a highly watched metric that is very important to my business.
I agree with the fact that there will always be consumers out there that will never ever convert, and that is accepted. But I'm always doing A/B tests and feature adds that makes sure that the fraction that does convert tries to increase.
With that in mind, I'll share with you some other lessons learned running a freemium model for many years:
1) free users generate enormous traction for your business
through social platforms such as Facebook, Twitter, etc.
2) free users today really view the Web with suspicion and will often, instantly accuse you of a bait-and-switch or scam without ever taking the time to read what has been presented to them.
3) the instant you even gently nudge an "upgrade" path, many customers instantly believe that they cannot use the service AT ALL unless they pay for something. In our case, the vast majority of our services are completely free, yet folks will instantly cancel their accounts when they even learn that we have a "premium subscription."
4) customers will times see a premium upgrade landing page and click through and purchase the most expensive subscription, as fast as they can, and then come back and argue it wasn't what they wanted.
I have no idea how you manage your email lists, but this is something that you have no excuse to be ignorant about. Confirmed opt-in vs opt-out has been known for many years.
It's not clear from the blog post whether there was any protection against bots and malware signing people up for a letter from santa.
It's not clear whether you asked people to confirm that they actually wanted to be be signed up, and let them know that they'd be getting further email from you.
And it's not clear what the content of the "Thank you" email was. I can imagine a lot of people flagging it if it's trying to push something.
 I know it's not about content but about consent, but many more people flag emails selling stuff than simple thanks email.
Right, if you are going to be sending email out for notifications of future products then you should probably set that up as a separate option and make it double opt-in. That's what most services do. In other words, they have the sign-up and then there is a checkbox or something similar which says something to the effect of "notify me of future blah blah blah." If you don't check that box then your email is typically only used for things like resetting your password.
This post made it to the first page on Hacker News. Some of the comments have been great and informative. Some comments on HN and here on my blog have been down right idiotic. Some people have made false assumptions and some I am convinced didn’t even read what I wrote. Either way, I appreciate all the people who took their time to comment on the post.
I wish I had time to read any farther, but I've suddenly remembered a vitally important prior engagement.
Freemium is certainly not applicable for all products and services.
Phil Libin (CEO, Evernote) has a good framework to think about this. Simply put, if the value of your product to your customer increases over time and usage, freemium could be a good way to acquire customers [ofcourse, this works when incremental cost per customer is very small]. On the contrary, if the value remains constant or decreases, you are better off with charging right away or subscription model.
Phil has talked about this multiple times. I can't share the video of the FI session that I had attended; but I found a similar talk here.
Warning: It is ~25 mins long.
> So I am off to refactor my web app and take out the free journey...
Then there will be nothing left. The site is even a .org intended to scream "free".
I can't find any evidence of a pay model except in the last FAQ question about deluxe letters and PayPal. Nothing on the home page, samples, or as far as Step 4 where I'm entering the child's information suggests anything other than that the service is free.
This isn't how "freemium" is supposed to be done. Well done freemium is up front about costs and the value proposition of paying, while offering a free path to sample the service, get users invested, and drive viral growth. The Santa letter doesn't result in investment as it's one time use.
This copy and site flow is a bait and switch or come on tactic that calls into question just how righteous the rest of your indignation might be.
The freemium model certainly has appropriate application to be successful, where success yields customers satisfied enough that they're willing to pay you for a higher level of service. Finding that mix for one's service is the secret sauce. That said, freemium is not always the best route.
I don't find this guy's experience as an indictment of that model, however. And certainly equating spam complaints from follow-on emails isn't an issue with the freemium model, unless you believe the value of your service is enhanced by unsolicited email.
But hey, this guy got something valuable out of this, but not in how he's stated it. He blames the users, but I blame email. Take email out of the equation, and I bet his subscriber take rate increases.
First off, I kind of feel bad for Tyler. I've had a similar experience with a web app I designed, and it sucked.
Second, I'm inclined to believe he (and I) ran into trouble because our apps were one-time-use or occasional-use tools. The freemium model isn't totally useless—it just doesn't translate well to one-time-use services/tools.
This almost seems like a parody. First of all, it starts with "I was glad to help the children" and concludes with "but I'm shutting it down because they were jerks."
And, personally, I would just assume people would mark my "thank you" follow-up as spam in high numbers. I would further be shocked if a high percentage of my Santa Claus users either read the Help or signed up for paid services.
The thing you didn't consider with your post xmas mail shot is that when you send someone an email there is a cost associated with that. When people agree to taking something for free then they don't expect an email later.
It is a desperate problem with the freemium model almost as though you need to tell people that the price of this free gimmick is an email that's going to arrive in your mailbox.
So let me get this straight, you just used my service to make something for your kid for free and then you nail me with a spam complaint?
Well, if you didn't get the user's explicit consent to be emailed, yup, that's what happens. SPAM is "unsolicited bulk email", so if you sent bulk mail to people that didn't want it, you're a spammer. Nobody cares so much about your service as to want to read an email about it -- people just don't like getting advertising in their email, and very few people would ever consent to be emailed explicitly. (They may leave a checkbox checked, but that's not consent, that's a slight-of-hand.)
Anyway, hopefully you learned that just because you can do something, doesn't mean you shouldn't. People that won't pay won't pay. And they don't want to read ads either.
So the guy misleads his users by offering a free service and then spamming his users, and then proceeds to blame the freemium model for the consequences of his own inappropriate (and in many countries illegal) actions?
"Free customers are higher maintenance than paying customers. I think it’s because they aren’t paying, they show little or no attention to directions."
This is true in my experience. We've experimented with limited support for people contacting support with pirated licenses. They take up more time, don't read manuals or use help, and ask dumber questions that would be answered by just a few minutes poking around. They are also more belligerent and much more likely to post negative reviews on discussion boards than paying customers.
Not complaining, just observing. It is what it is.
>"Free customers are higher maintenance than paying customers."
I would like to share my small experience with the freemium model. I have with a friend an online dominoes game where people can play for free but they have to be invited to play. Premium players are the ones who can create new games so in order to play free you need a premium user to start the game.
In my experience, all the author says is completely true. The free users require somehow more maintenance and they are by much the ones that complain more. However, in our case they are the ones that build the site. Without them, the site would be really desolate and premium users would be complaining about the lack of people to play. It would be indeed cheaper to maintain but I am completely sure that the income would be 80% lower.
I don't know if this experience would be helpful for the community here but I thought it would be interesting to share our case where free users are indeed troublesome but completely necessary.
I'm not happy either with the fact that it is hard to make money on the internet when so much stuff is free, but I can guarantee you going "pay only" is going to have one effect: it will kill your site for good. No one knows how good your service is till they try it, and you are competing with a zillion other free services.
Free customers are higher maintenance than paying customers ... when I sent a thank you email a couple of days ago to everyone who used the site this Christmas. Many free customers flagged the email as spam!
Still doesn't answer the question. How does mailchimp know? Do MUAs commonly send some kind of response to the sender when the user flags a message as spam? Or is this something they're getting via webmail services?
That's a good question I couldn't find the answer for. What I can tell you is what happens as a MailChimp user: if I send out an email and someone clicks the 'this is SPAM' button in their mail client, MailChimp notifies me that this happened so I guess that the email client somehow notifies the sending mail server using the List-Unsubscribe header.
I've occasionally seen GMail ask “do you want us to unsubscribe you as well” when flagging stuff as spam (I refuse, because I don't want to confirm my address to spammers). Perhaps some provider has come up with a way to differentiate “mark as spam” from plain “unsubscribe”, but I do find it surprising.
Most likely there's some indirect, aggregate feedback as well.
He's probably using List-unsubscribe. You can add headers to your emails that give users a way to unsubscribe from your list if they click "mark as spam" (and many do, despite an "unsubscribe" link appearing at the bottom of the email).
What intrigues me most about your article is that it begs another question. How much testing is enough? Based on your account of the situation I don't think you tested enough variables. Were the premium features just something you threw up as an attempt to monetize the site or did you really think through the needs of someone who is willing to pay you?
Stepping through your site there are lots of suggestions I would make (which are beyond the scope of this comment), but at what point can one say he's done enough testing to say "I'm done with freemium". That's the question I'm interested in.
Well, that's a perfectly reasonable conclusion to make, in this case. However, his business just seems to be the wrong one to use this model on. For one, there is no added value for paying customers from the free customers being there. For another thing, the rewards for buying into his product just seem.. meager. I know that I wouldn't want to buy any of them.
Though, his comments about the psychology of free users? Spot on, in my opinion.
I think the average user doesn't know what it means to flag something as spam. Indeed, I didn't before I read this post.
To the average user, I would guess that flagging as spam means "Don't show me any more e-mails from this address." I think few would guess that it would have any negative repercussions for the sender, or indeed that the sender would ever find out about it.
I flag anything as spam which meets one of the following criterion:
2. no email opt out (looking at you AppSumo) and not accepting mailinator
3. requires more than clicking an unsub link and perhaps an extra button on the loading page. I will not enable JS to do so.
I have marked several mailing lists, like Postgresqls, as spam. I tried to unsubscribe from that particular one for 10 minutes then gave up.
If you are sending emails that people don't want, even if they asked for them in the first place, you may as well be spam. I hope my actions eventually lead to admins being more selective with emailing.
Freemium is the dominant model among online games for a reason. Dropbox is another example. Anything addictive that has the potential of hooking a customer long term. Noone is going to shelve out until they've put x amount of hours into it.
Christmas cards is the worst product imaginable. It's a one-off thing with no addictive potential and lots of free alternatives.
Can't fully test the free vs. paid as "we are closed for the 2011....", but I am not sure how uncomfortable was it to go free option versus paid (eg. big site logo on the free printout). Maybe the free option should be slightly more painful to make users consider paying?
This is something with universal appeal, so if you could go for high traffic and allow the user to browse and add products from partner sites you could make money from sponsorship deals and advertising.
although i can see a danger of making it too commercial looking and putting folk off
My point is that Letters From Santa is a vitamin, not a painkiller or a cure.
I think this type of business actually lends itself well to a freemium model, if the paid version is worthwhile. That being said, you stepped into a massively over-saturated gift card market.
You are getting a lot of good advice here. I'd use it. The advice that is. As for the site, you know what worked, what hasn't and there's plenty of other holidays you can try to monetize. Letters to the Easter Bunny, perhaps?
I'm going to use absolute terms below, ie. never or always. I realize that there are edge cases, but I'm not going to bother addressing those. They will always exist & they can be wildly different from business to business. I'm going to sound cranky cause I wrote this right after I woke up this morning. You've been warned.
I think your premise is flawed & would go so far as to say there are aspects about your business that you don't fully grasp.
1. You don't understand the freemium model. With freemium services that succeed, the free option offers features that cover a majority of users, but are still limited based on cost to the provider. The paid tiers are priced to cover costs of providing increased limits & additional features, while staying under or matching customers' expectations of price. I'm not saying all freemium services work this way, but tons do. And I'm not saying you don't know they don't work that way, but I don't think you understand how it applies to your business. Which brings me to the next point...
2. Paid features must provide true value. Not artificial value that's generated by offering low-res versions of your product for free & high-res if I pay, but features that actually increase the worth of your service to me. My kid isn't going to care if he gets a low-res letter, so why should I pay for a high-res one? With payment, you have to provide meaningful value. Your site idea of value is giving me a letter template on a single background with 3 color choices, along with a door hanger & an envelope. This is 2011 and if you want me to pay for that, you'd better provide me with some fancier premium backgrounds & a color-picker. Oh...and there are different printing/packaging options. And you're mailing it to whoever I want it sent to with a return address located at the North Pole. And the folded letter or envelope has Santa's fancy wax seal on it. And it smells like an elven woodshop. Now THAT letter from Santa? Yeah...I'd buy that...and I'd buy 10 more for all the other kids in my extended family. And I'd tell everyone I knew that had kids in their lives about it, as well as share it on every social network I'm on. Cause THAT letter from Santa kicks ass!
You know what...I had more to comment on, but screw that. I'm going to go build my own Santa letter generator right now that does all that and more. And I'm going to start taking order in the next two weeks.
Actually, no...I need to finish coding my freemium startup's prototype. But expect good competition next year, cause I just told everyone how to beat your current offering.
3. Know your customers. You say you had a good design. I'd say it's just ok. It's about on par with sites made 5-10 years ago. To be honest, I'm not used to using sites that require multiple page loads to customize stuff & that don't provide a live preview of my changes. Also, I'd take a look at how much time your users spend on your landing page, cause I'm betting a lot of that text that's mucking up the space around your big red button isn't being read. Take a look at services that have launched in the past year for guidance on how to improve your design. Oh...and get a designer to handle the improvements.
He provided an opt-out link, he didn't use an open relay and it wasn't misleading the customer in any way.
He didn't violate any US laws. Interestingly enough, it also exempts "transactional or relationship messages" and only applies to email that is promoting a commercial product/service. At the time of the email, he had nothing for sale on his site.