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Freemium – Only for the Birds and Bees?

The best things in life are free, but you can give them to the birds and bees … I want moneyLyrics to Money, by The Flying Lizards 1979

I read an article in the WSJ titled “When Freemium Fails”. Note that the article focuses very much on B2C offerings. My thoughts are very much around how this can be successfully applied to a B2B business. Highlights that stood out:

  • Freemium only makes sense for businesses that eventually reaches a significant number of users. Typically only 1% of users will upgrade to a paid product (as born out by the S1 of companies like Splunk)
  • Paid users generally expect to get better or different versions of what they’ve already received free of charge
  • Enterprise clients typically have budgets for buying goods and services, so they aren’t necessarily drawn to free products.Although Open source and the success of MySQL, NoSQL databases and the Hadoop wave would seem to contradict this paradigm
  • Freemium needs time to work. Fewer than 1% of users of Evernote (a company cited) become paying customers within a month, compared with 12% after two years

So will Freemium work for you? Having put a lot of thought into this myself and analyzed several successful and failed businesses using Freemium, I say it depends on you! Like any Marketing initiative, you must put in the necessary thought, analysis and planning before embarking on such an endeavor. Here are some considerations framed in the  classic P’s of marketing:

  • Product
    • Will your offering have the same Product Features, limited only by some throttle/volume?
    • Is your product ready? How much work is it to package up? Obviously if you are Cloud/SaaS you should be okay
    • How will you enforce licensing? Time-based, throttle limits, lite version?
    • How will you deliver upgrades/fixes? (if you are non-SaaS)
  • Price
    • Eventual pricing upon conversation? Same volume based metric?
    • For enterprise (non-SaaS) Perpetual vs. Subscription pricing?
    • Impact on existing/future indirect OEM Pricing and partners?
    • Go the “open source” route and charge only for support (ala RedHat or Cloudera model)
  • Promotion
    • Time-bound intro offers to accelerate uptake? E.g. Limited to first xxx customers
    • Conversion process follow-up (at 1 to 3% conversion rate)
    • Promote successes feature profiles of enthusiasts as a branding by product
  • Placement
    • Accessible only via SaaS/Public Cloud? Downloadable enterprise versions?
    • North America only to start? Or Worldwide?
    • Community supported only for free model? Discussion groups, staffed by your support experts
  • Positioning
    • Who is the target user and persona? What do they care about?
    • What are their primary use cases?
    • Are there specific industries that you can focus on?
    • What is the competition doing? Are there other Freemium/community/Open source offerings
Are you considering Freemium for your B2B offering? Wikipedia actually has great resources around this topic http://en.wikipedia.org/wiki/Freemium. Drop me a line if you want to exchange ideas!

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