Freemium has run its course

http://gigaom.com/2012/07/21/freemium-has-run-its-course/

by iProject • 14 years ago

47 27 14 years ago

porsupah• 14 years ago

An interesting article, but perhaps rather heavy on assertion, and light on actual data. Would it not, perhaps, be significantly improved by quotes from publishers and developers who are engaged in both "freemium" and paid models? Hearing first-hand of what trends they're experiencing would lend more weight to the assertion that freemium is on its way out.

Personally, I do lean very much toward outright payment for a product or service - I pay for my LJ account, though free accounts are offered; the few TV shows I enjoy, I buy from iTunes, at least when they're made available; the music I listen to, similarly, I buy, rather than listen to on a subscription service that subsequently offers microscopic payment levels to the artists.

tinco• 14 years ago

"which unlike freemium is neither new nor a fad" Because freemium is new and a fad?

There's nothing in the article that indicates that freemium is somehow bad for your business. Just opinions of a few people. Which don't even contradict freemium. SurveyMonkey 'downplays' its free offering, not stops it. Marco Arment says you should charge for your product, since when is freemium not charging for your product?

Freemium is not something businesses do because they're ashamed of making money, it's something businesses do to gain access to a tough market.

Do you think people on the streets are handing out newspapers, soft drinks and mini-snacks for free because of charity? It is marketing. Can anyone show me sparrow would have gotten the same amount of attention with close to no marketing budget if it had only the pay-up-front version?

How many sales would they have lost to pirating if the ad-supported version was just a trial?

Freemium works, figure out what it is that is worth money to your users, and make sure people can get it for their money. Pepsi-Cola would love a way to give their new taste to so many people for free, with almost no distribution costs.

drumdance• 14 years ago

I smiled when you said "SurveyMonkey." There article is about SurveyGizmo. I used to work for SurveyGizmo and this (very common) confusion was just a cost of doing business.

I think it's important to distinguish between consumer and business apps. SurveyGizmo targets businesses.

heyitsnick• 14 years ago

Is that not gigaom's model?

"First use the free version to drive adoption and build a large customer base, and then find ways to monetize that base by upselling the paid version and selling extras."

Gigaom gives away content for free to drive adoption, build a large base, then upsells GigaOM Pro.

Negitivefrags• 14 years ago

Someone should tell the games industry that freemium is dead.

I doubt that they will hear you over the sound of all the money raining down on them though.

dfriedmn• 14 years ago

Majority of "top grossing" apps are free. The article seems to reflect the opinion of a small minority, who happen to make a lot of noise in a few circles.

egb• 14 years ago

Exactly. They need a new category of "freemium" in the iOS appstore to clearly show which apps have IAPs without having to peek inside and see what's there. My current games are all free and ad-supported, which is actually quite a selling point for my target audience of older folks who don't want to plunk down cash for their casual gaming fix...

Edit - added "in the iOS appstore"

soup10• 14 years ago

Most freemium games crudely abuse human psychology to get players addicted and waste their time and money. It's entertainment, sure. But most of the time the game's are like slot machines, designed primarily to hook users and exploit them. Not out of any genuine desire to provide entertainment.

I think the freemium model is probably not ideal for many products that people have a real need for, it just lets people be freeloaders if they don't need the premium features. There are several freemium services I use that I would happily pay for.

brianchu• 14 years ago

Welcome to the entire entertainment industry.

lnanek2• 14 years ago

Google IO before last, Google announced apps with in-app payments were making 20x conventional apps. In-app payments are mostly used for a lower friction version of freemium than forcing the users to buy a separate pro app or web site sign up account/subscription.

wensing8• 14 years ago

But it's not safe to assume that you can take any product, make it free, and then make 20x more money with in-app purchases / add-ons / freemium.

true_religion• 14 years ago

Freemium is perfect for entertainment products where value is subjective so users need to be enticed with a try before you buy mentality.

With a B2B product, I think the best solution is a trial period to lock the user into the project, and demonstrate value over the long term before asking for money.

wensing8• 14 years ago

Stormpulse is now B2B, but we started with a multi-year "free trial" for millions of people - i.e. freemium. This was obviously critical for distribution / adoption, but ultimately wasn't profitable.

genwin• 14 years ago

I checked out the site. Nice! The paid tiers are named "Entry" and "Operational", whereas the free trial tiers are "Entry" and "Enterprise". Shouldn't the names of the free tiers be consistent with those for the paid tiers?

dools2• 14 years ago

I find it strange that this article is placing a paid model in opposition to a freemium model. Freemium is nothing more than an indefinite free trial with limitations placed on usage. It doesn't indicate that you don't want to charge for your products.

Far and away the best execution of freemium I've ever seen is Wufoo. You get a few forms for free to start using the service and can get genuine utility from the service. By the time you hit their escalation trigger, if you're genuinely getting value from the service the cost of change far exceeds the cost of subscription. If you're not getting genuine utility from the service you'll find something else. If you never hit one of their escalation triggers then you're a negligible cost to them and since all free forms advertise Wufoo when submitted, you're doing free marketing for them, which can be offset against the cost of supplying those free forms in the first place.

It's a beautifully designed freemium model and, I think, well worth studying when you're designing your own pricing strategy because it obviously works insanely well for them!

wensing8• 14 years ago

Freemium is nothing more than an indefinite free trial with limitations placed on usage.

I disagree in the sense that freemium is also a little understood business model, chosen by many entrepreneurs by default, with little to no thought.

It doesn't indicate that you don't want to charge for your products.

It does indicate that you've decided to not charge for at least one of your product's benefits, which may be the only one worth paying for.

dools2• 14 years ago

which may be the only one worth paying for

Then you haven't designed your freemium model very well ...

tsmith• 14 years ago

I'd never seen the Hershey's / Ferrero Rocher experiment referenced in the article (that supposedly "started the free-mania") but couldn't the opposite conclusions be drawn from the experiment? I.e. that having a free option (somewhat obviously, perhaps) reduces revenue for the vendor?

In the experiment, when offered the choice between a Hershey's Kiss at $0.01 and a Ferrero Rocher chocolate at $0.25, 50% of respondents chose Hershey's and 50% chose Ferrero Rocher - for an average Revenue Per Customer (ARPC) of $0.13. When the price of the Kiss was lowered to $0.00, 90% chose the kiss and only 10% chose the Ferrero Rocher - for an ARPC of $0.026. All things being equal, the vendor would have to have 5X the number of "sales" to achieve the same amount of revenue, and the marginal Cost of Goods Sold/Cost of Sales would have to be zero to achieve the same amount of profit.

eps• 14 years ago

The experiment comes from the "Predictably Irrational" book. A very good read in its entirety.

[1] http://en.wikipedia.org/wiki/Predictably_Irrational

tlogan2• 14 years ago

My understanding is that free part of freemium is a just a way to promote your product (i.e., marketing costs). I learned that people who chose free will probably never pay - however they can do a lot of work for you for free.

wensing8• 14 years ago

In some cases, a lot of the people using the free version will pay if you force them to.

tlogan2• 14 years ago

I agree. May I ask, how would you test that with existing Free users? Make free tier more restrictive?

wensing8• 14 years ago

I'm quoted a few times in this article, but I do think freemium can work. The key is knowing if it can be profitable and sustainably so given your product and market. I recently dissected this issue in a blog post: http://wensing.tumblr.com/post/25167979206/the-anatomy-of-pr...

rlalwani• 14 years ago

The problem with Freemium model is that there are many people, > 95% in my opinion, who only come for the FREE part. Less than 5% users actually pay. But you end up paying for the infrastructure costs for all 100% of the users.

Freemium has run its course

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