I was reminded once again
of freemium by a very interesting article from Don Dodge which notes that the
average conversion rate of free
offerings for companies using the freemium model is about 3%. I
was actually quite surprised (in a pleasant way) by this level of conversion.
I've been considering the freemium model for one of the products currently being
built at my startup, HubSpot
The product under
, is a
website grading tool and recommendation engine that helps business people get a
sense of how effective their website is from a marketing perspective, how it
compares to competitor websites and makes recommendations for improving the
site. The tool is currently free. Even in it's current beta state (very little
PR and promotion), it has graded over 28,000 websites and gets over 500 visitors
So, what are the challenges
with releasing a product under the freemium model?
Here are the ones I've come
up with (so far). I'm sure the a few of you will have some of your own. If so,
Challenges Of The
Deciding what to include in the free version and what to offer in the
premium version is non-trivial. The trick is to put enough in the free version
to get traffic and usage -- but not so much that there's not enough incentive
for a certain percentage of people to upgrade.
hardware, bandwidth and infrastructure are cheap (and getting cheaper), they're
still not free. Supporting thousands of free customers costs money and unless
there's enough money coming in from paying customers, there might not be enough
cash coming in to subsidize the free folks.
Support is a problem. Though in theory you can take the position not
to offer any support to the free users, in practice, it's hard to have the
discipline and processes in place to actually do this.
Pricing for the premium version is likely impacted by the fact that
there's a free version. For example, I don't think one could successfully offer
a premium product for $250/month if there's a free version out there. The
premium version would have to be really good and an order of magnitude
better than the free version. This is probably why most freemium products are
less than $50/month.
5. It can
get a bit tricky to use scaling pricing models for a freemium product. For
example, let's say you charge $20/month "per user" (per seat or per whatever).
For many customers, this creates an added barrier to upgrading. If they have 10
users, there's even more incentive to just have all 10 users use the free
version. Or, they could just buy one paid license (for the key features they
need) and keep the other 9 on the free version.
Attrition rates can be unpredictable and potentially higher than
traditionally priced products. For example, if there's not enough "value" in
the premium version, it's possible that even customers that upgraded will
eventually revert back to the free version.
Of course, there are lots
of benefits to the freemium model too -the most important of which is efficient
marketing. It's a greaty way to get early users to use the product and have a
pool of potential people to upgrade.
What are your thoughts?
Have you tried the freemium model? If so, what has your experience been? Are
there other challenges that I missed? Would loveto hear your ideas in the