Stop practicing Freemium - it's time to make money

The question of the appropriateness of using Freemium is relevant for a wide variety of products and solutions. To be or not to be? Lincoln Murphy sets out his thoughts on this subject. Reasoning is supported by data on companies that are very famous.

Let me explain ... I do not hate Freemium.

In general, there is no marketing strategy, profit model, or customer acquisition that I hate. Including Freemium. It just seems to me that when choosing a business model, sometimes you should think more seriously about what makes sense to use and what should be discarded ..


Over the past six months, I have been witnessing something that can already be called a trend that is gaining momentum: companies that entered the market using the Freemium model come to the conclusion that it does not work as expected, and throw it in the trash, replacing it with then more appropriate.

That is, as if they finally decide to go towards profit!

As for the companies I worked with, the model they switched to with Freemium turned out to be simple and completely non-exciting: premium service + free trial period.

Boredom, isn't it? Although, how to look. Depends on what to strive for in your business and how much money is available to finance aspirations.

Success stories of Freemium. usual suspects

To be honest, we (the collective we), talking about Freemium's success in B2B, always mean the same small set of companies. It is the same because there are few such companies.

But each of the companies * of this small set has a HUGE - it’s just that my jaw dropped open when I looked at the latest data - the investments received.

Typically, such companies include:
Evernote - at least $ 251 million
Dropbox - at least $ 257 million
Box - at least $ 409 million
LogMeIn - $ 20 million before entering the
Yammer exchange - $ 142 million by the time it was bought in 2012 for $ 1.2 billion Microsoft

*I am sure there are others. I am also sure that there are few such others. The bottom line is that for every Freemium success story there are volumes (I have no statistics) of failure stories. And you need to pay attention to the fact that for every Freemium success story there are hundreds of success stories of a pure premium model, which you can’t read about at Techcrunch.

In my opinion, by the way, Yammer was a super-indicative case in the enterprise solutions market, because this company came to it with a unique sales model for this environment and completely destroyed the rival old Sharepoint. So, Microsoft decided that such a company is easier to buy than to win.

And Yammer generated revenue (not sure if it’s profit either), so it wasn’t just accumulating a user base in the hope that someone who knows how to monetize it would buy it later (as happened, for example, with Instagram, which in 2012 was acquired by Facebook for the infamous $ 1 billion, despite the fact that the income was ZERO).

Rules for the success of Freemium

For the Freemium model to work, there must be a VERY BIG market, and you must have VERY MUCH money, which would allow you to:

- Create a user base.
- Understand how to make this base grow on its own (virus rate).
- Understand how best to monetize existing growth *.

*Freemium has one big trouble. It often turns out that it’s too late to effectively monetize existing users, because the psychology “free and forever” is already firmly rooted, and the idea “From each penny”, when they hope to get at least something from each user, crashes.

But for companies with modest financing and a not-so-large market for which servicing each next user is relatively expensive, or for those who know that their service is very valuable and can make a lot of money in a narrow address market ... it’s better to refuse Freemium in favor of something else .

Turn to profit: three examples

Among those companies that I have helped over the past six months, there are three that have decided to abandon Freemium and embark on a profitable path.

1. Qualaroo (formerly KISSInsights, acquired by a company formerly called CatchFree). In an article in the Wall Street Journal, entitled “Freemium is not for everyone,” Sean Ellis noted that Qualaroo’s free plan “priced us down and didn’t meet our profit goals.” This article in the Wall Street Journal is worth reading. I did not work with Qualaroo.

2. Stormpuls.Stormpulse had millions of visits per month, often users were GIANT multinational companies that FREE insured their billions of assets. It was possible to turn very few users into customers (this is the question of why pay for what they offer for free). I worked with Stormpulse. Therefore, they increased prices 10 times and threw Freemium into the trash. And very quickly, in just FOUR months, things went smoothly, and today they have an annual income of $ 1.2 million only from repeat customers and they are profitable! It seems that they have worked out the well-known principle of “more money - more problems”.

3. GetResponse.10 years ago this company started in the garage, and today it is practically the embodiment of the success of the Polish business. But success did not come on its own. If many SaaS firms can say that each new client (in terms of customer costs and other related costs) does not cost them very much, GetResponse could not boast of this.

To accustom users to your service in email marketing, you need to spend some money. But if you continue to support free users (even if everything else is aimed at profit), the profit will gradually melt.
And then it may turn out that free users often do things that require a separate investment in security or in something else and less and less contribute to the success and fame of the company.

This company was Freemium even before the word “Freemium” became a term, and, in general, did everything right. However, it turned out that playing with the users in the “store” on Freemium terms was pointless, and the company’s chief executive decided that enough was enough nonsense.
They switched to the pure Premium + Free Trial model and today have PROFIT. At the moment, I am helping their director cope with a rather high failure rate and this should help increase the profitability growth rate. (Update: as a result of our joint work, there were 15% fewer failures).

4. Docebo- This company offers locally installed software for organizing training. Among her clients are leading Italian brands, and the loyalty time exceeds 5 years. To expand the business and take advantage of a larger market that is not available to commercial installable software, a cloud solution was invented.
At first, Docebo tried to promote it using the Freemium model, however, when it turned out that out of 7,000 subscribers of the free version no one turned into a paid user, it was decided to abandon Freemium and launch the Free Trial strategy. And real paid customers began to appear.

When the figures were announced at the last joint meeting, the director was simply happy because he realized that there is a market for a cloud solution and investments are justified.

5. And many others in 2014. For example, SugarSync, Dopplr and Mailstrom, which, according to GigaOm, are in the process of abandoning or have already abandoned Freemium. It is interesting to see how they succeed.

Dopplr (possibly others) is going to simply transfer all free users to a 30-day trial version and say goodbye to those who do not convert after 30 days.

Although everything can go well, if you take into account the psychology and historical experience, you should expect a big wave of discontent from fans of the free. I hope the companies are ready for such a development of events, which is very unpleasant (although this will pass).

You need to understand that when you cling to someone for a free gift, and then try to get money for what you promised for free eternal use, there will be problems. And even if these users like your product, you have deceived their expectations and you will have to suffer from this psychological “penny” barrier.

Freemium tempts - don't give in!

I would also like to note that many corporate and traditional software companies that are considering moving to the cloud are not able to resist the temptation of Freemium, which promises a rapid growth in the client base.

I can’t recall a single case in the last two years, so that someone who asked me for advice on moving to the cloud would not consider Freemium as a promising marketing strategy for entering the market.

And after all, for some large vendors of proprietary software Freemium may work, but then they will need to actually develop their own special Freemium, which will definitely differ from the standard approach, instead assuming a lot of specifics.

In conclusion - success in your search for the optimal business model, both for the purpose of attracting customers, there and their subsequent successful monetization!