Thoughts on the Freemium Model

The freemium model is a business approach where an account, typically with limited functionality, is offered for free with the hope that the person eventually upgrades to a paid premium account. I must admit that we don’t do a freemium model for any of our products (we do have a free product, Visitor ID, but that is more of a generic freebie). With that said, I have a few thoughts on the model:

  • Many entrepreneurs think it is the holy grail of business models only to learn that many companies won’t even use a product for free
  • At its core, freemium is simply a lead generation mechanism, much like open source
  • It is incredibly difficult to get someone to upgrade from a free version to paid version
  • Offering a free version of a product often times attracts a different crowd compared to a free trial
  • Many labor intensive items like support, on-boarding, and policing (e.g. if email marketing is involved) are expensive and difficult to scale with lots of non-paying customers

My goal is to one day have a successful freemium product, but to date the feedback I’ve received from entrepreneurs that have one is that it is much more difficult than they expected.

What else? What are some more thoughts on the freemium model?

4 thoughts on “Thoughts on the Freemium Model

  1. We’ve kicked around this idea as well, but haven’t found the right model that makes sense for our industry. I think you’re bullet points are exactly what I’ve seen, but I’d like to see more debate on this issue here from others..

  2. The planning alone gets expensive because you have to figure out how to differentiate your free model from both your competitors and your paid model [and have even cooler features in your premium model.]

    You also have to worry about how expensive your free piece is, as if it’s too good, the people paying will realize that they’re actually supporting the servers and bandwidth of the free users and might as well downgrade.

  3. A good close-to-home example is Shotput Ventures -funded music technology company Khu.sh. My advice to them last summer was to go with a freemium approach to try for viral uptake of their LaDiDa app for iPhone. They ignored my advice and proved me wrong: LaDiDa is generating 5-figure monthly revenue with great margins with a paid-only model.
    Wayt

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