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Why Free Plans Don’t Work

318 points by nsoonhui 16y ago

scrrr 16y ago
Yes, but would those companies have become popular if there hadn't been a free version in the beginning? Would as many invest in an unknown product in the beginning to eventually make it known?
- eldimo 16y ago
  That's why you offer free trials. :)
  - scrrr 16y ago
    So the real advice is: Offer free accounts and then get rid of them.
    - meric 16y ago
      I wonder how well offering free accounts, getting rid of them and then grandfathering the free account users would work. How would the free users who have exclusive free accounts behave? Will they be more likely to promote your product (aka bragging) or would they be inclined to try to sell their account to someone?
    - dagw 16y ago
      That was basically what I took away from the article. Start by offering free accounts until you gain some sort of traction and people become aware of your product, but once you start getting significant traffic stop with the free.
      - hasenj 16y ago
        Something else to take away: don't require people to give away their billing information upfront when signing up for a trial; simply downgrade their account if the trial period ends and they haven't paid yet.
    - revorad 16y ago
      I didn't see that being advised anywhere in the article. I think the author is implicitly recommending limited free trials, which make perfect business sense.
- alttab 16y ago
  This only works if the user base also evangelizes. Your model wouldn't work well if they say "Use BidSketch, its free and awesome!" and then they went there and it wasn't free, they wouldn't sign up for a paid account because their initial impression was they didn't need their wallet. There are free/paid products that have been around for a fistful of years that people still accidentally stumble on. Because we spend so much time on the web we think others watch whats happening all the time and catch our moves. From a marketing perspective, you have to tell the same story for 12-18 months before it becomes "common knowledge" and you need the right PR connections. You could change your App's name and logo 10 times in 6 months and no one would really notice except for your users. More simply put: most people don't know if a product is "known" or "unknown" - they simply decide if it does what they are looking for and make their decision based on that. You are not your user, something we developers tend to forget from time to time.
- revorad 16y ago
  Yes, but would those companies have become popular You hit the nail on the head there. Web startups have become a popularity contest. Instead of building really good products and selling them for a price, people are trying to get as many users as possible and then tinker with all sorts of metrics to get "conversions". I can see the reason for doing this if you have big investors and want to sell to a big company one day. But, it seems like a really poor strategy if you want to build a profitable business.
someone_here 16y ago
0.8% of free user accounts eventually upgraded to paid. When only 1% of users were using paid?! That's doubling your paid user-base!
- loewenskind 16y ago
  But how many free users came in in the mean time? Maybe the raw number was doubling but the paid user percentage wasn't. And even it was he found a way to get an 800% increase.
  - Ardit20 16y ago
    He said the revenue was remaining flat. That is the revenue was not increasing, so the core number of paid users was not increasing either.
loewenskind 16y ago
Looks like "the web changes everything" is coming around full circle. To see the future one need only look in the past. What are retailers doing today? They've been at this for, what? Thousands of years, right? In other words: some things are going to be expected to simply be provided (e.g. free wifi at starbucks). Some things people are just not going to pay much for, not even as much as you did (e.g. loss leaders like Milk). Some things you can mark way up.
noverloop 16y ago
I think you should use a free plan if actively using the 'free' plan will eventually force the user to go to a paid plan. e.g. dropbox. If you just give your core product away for free then users will only switch if they need the extra features of the paid plan. You can still use 'free' for marketing, because total conversion rates with a free plan will probably be higher, just don't expect these 'free' customers to switch if they don't have to.
- kranner 16y ago
  I think you just persuaded me to double the quota on my free plan (non-recurring, pay-per-use plan)
- revorad 16y ago
  Is there any evidence that Dropbox's conversion rates are higher than the other apps the OP cites?
- Groxx 16y ago
  I'll admit I'm a free-dropboxer, but that's almost exclusively because their plans are all too large and too expensive. I'm one of the multitude calling for a 10gb / 20gb plan. I've got photos elsewhere, but my main set of stuff I'd store is only about 5gb, and duplicating that (much less the 50gb of their smallest paid plan) to every computer is a waste - I'm using it for temporary storage and backup, across two (eventually 3) operating systems, none of which are more than 50% happy with each others formats without freaking out the next application I use. In the meantime, though, my main Google account has 20gb for $5/year, and for the equivalent-lowest of 50gb/$100 I can get 400gb, which will also store my emails and photos. I can back up any email account on my machine by dragging the messages to a gmail folder, and waiting a little while. Docs now allows 1gb any-kind file uploads. I can send my photos to Picasa (the reason I have the extra space). I'm a massive word-of-mouth spreader of Dropbox though, especially as I'm the Geek of a few families + their neighbors. I've probably gotten them more business than what I cost to host.
- nhebb 16y ago
  The problem with dropbox is that they don't have a client for automating backups. That means everything I store there has been manually dragged into the dropbox folder (see NB). It would take me a long time before the number of files I needed to share online exceeded their free limit. NB: Truth be told, I run batch files via task scheduler for backing up certain folder to dropbox, but I doubt the typical consumer does.
angstrom 16y ago
I expect in the near future we'll see more Trial Membership Plans ala Netflix and others and the Free Plan will be removed in favor of a demo example or a "nearly free" plan.
zatara 16y ago
"... led to an 8x increase in paid conversions. Look at that again. That’s not 8%. That’s 800%." Technically, a 700% increase.
- kranner 16y ago
  Good point, but he did say "increase". Perhaps he meant x+8x?
paraschopra 16y ago
I recently wrote a post tracking evolution of pricing plan of a company (Clicktale) over last 4 years. Even though they still have the free plan, the prices of individual plans increased 10x in four years: http://visualwebsiteoptimizer.com/split-testing-blog/how-pricing-plans-evolved-over-time-for-a-saas-startup/ http://visualwebsiteoptimizer.com/split-testing-blog/how-pri...
emanuer 16y ago
I was just thinking this about Evernote the other day. I really want to pay them. They make a great product that serves me very well. I do believe they deserve my money. The problem is, the payed plan would be a complete waste for me. I don't need it. The free thing fulfills my needs perfectly. If it would be a 30 days trial, I would be a happily paying customer by now. The same thing is true for dropbox for me. After the first month I was actively looking for a "donate" button on their website. I love the product, it works perfect, I would pay for it without thinking a second, I just have no need for the paid plan. I understand the free plans are for marketing purposes. In my case I had more than 10 different choices for a note taking application, or a online backups system. The factor that pushed me towards Evernote and Dropbox were the consistent great reviews. Free was the cherry on top, but not the reason why I choose those two apps.
- rmc 16y ago
  Why not buy the non-free plan for a week, then cancel? Or email them. They might use PayPal, perhaps you could transfer money in there if you know the right account.
  - emanuer 16y ago
    Most important reason: laziness I am not going out of my way to give them money. However I am perfectly willing to pay when they change their price structure. [For dropbox I found their prices per GB are almost double of cheaper competitors. They could charge much less per GB if they would get money from more customers]
    - Groxx 16y ago
      Vs Google's storage costs (Docs lets you store up to 1gb files of any kind), they're 8x more expensive (400gb for $100 vs 50gb). Granted, the service is very different, and Google is ever-so-slightly larger. It's still a big jump.
- Groxx 16y ago
  I'm not touching Evernote again until they get exporting features. It's a really impressive, useful service, but despite their repeated claims of supporting open formats they've provided utterly squat in the past few years I've watched them. Years. More than enough time to write exporters (not even .txt / .rtf!) if they value it at all.
bmcnamara82 16y ago
Instead of saying that "free" plans don't work outright, I argue that they work for some type of products and don't work for other products. He provided examples of niche products that so far, serve small markets. LessAccounting, Crazy Egg, - what is their user base numbers? One example he gives has a user base of 5,000 users. If you are a niche product, I don't think the free plan is ideal since you are serving a small market and need to build a user base before it makes sense. Conversely, if you have an app that is going to get a really large user base, and I'm talking 'millions', then it probably will work (i.e. google, twitter, facebook, ect.). The example of those are far and few. The other comment I would make is, maybe you aren't creating a compelling enough product to get a user demand that supports a 'freemium' biz model.
- michael_dorfman 16y ago
  Conversely, if you have an app that is going to get a really large user base, and I'm talking 'millions', then it probably will work (i.e. google, twitter, facebook, ect.) Actually, not. None of those are using a "freemium" model; they are all ad-based products. If your business model is dependent upon giving advertisers eyeballs, "free" is a great way to go-- but that has nothing to do with the topic at hand.
  - bmcnamara82 16y ago
    "Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base." From Fred Wilson's mouth (he coined the term "Freemium")
    - revorad 16y ago
      acquire a lot of customers very efficiently First of all, people who don't pay are users, not customers. Secondly, how are conversion rates of less than 2% considered efficient? In the freemium model, even if cost of customer acquisition (COCA) for a free "customer" can be considered to be zero, Life Time Value (LTV) is increasingly negative.
clistctrl 16y ago
Maybe he should also consider changing the text on the register button? http://www.bidsketch.com/ http://www.bidsketch.com/
- revorad 16y ago
  There is a 30-day free trial.
shadowsun7 16y ago
I loved this article, but after thinking about it for a bit I realize that there is an argument for going free. Two pretty strong ones, in fact. 1) If you want to get acquired - and we're talking about a big acquisition here - it would do to go free so you manage to score a big-enough user base to get noticed. And so the bigger company is interested in acquiring you not only for your technology, but also for your users. (That said, acquisition may be a risky bet.) 2) Going free also makes sense if you want total market dominance. In which case, free is really the only way to go. The writer is speaking from the POV of a micropreneur, and it makes sense for him to retract his free plan (in fact, it makes sense for 37signals/the 37signals model to do so too). But if you're in the position of being the next Facebook, going free and dominating the market is really the best thing to do. (Or Youtube, or Google, or Flickr). You find lots of users, lock out the competition, and then you can figure out how to monetize. Which only goes to show that there are all kinds of businesses out there, and the advice you read on the net really should be done through the context of your particular business and/or market.
- revorad 16y ago
  Going free also makes sense if you want total market dominance. In which case, free is really the only way to go. No it's not. The other way is to make the best damn product in the market. I hate to give cliched examples, but since we are talking market dominance, see Windows, Adsense and iPod.
  - damoncali 16y ago
    I can see iPod and Adsense, but Windows? Windows won for very, very different reasons. When Windows first appeared, it was far from the best product on the market. It won because it was already everywhere (because of DOS). Microsoft practically invented the "give it away to ensure market dominance" game (Ok, slight hyperbole there). It took the court system to slow them down.
    - blacksmythe 16y ago
      I agree. I think it would be almost impossible to introduce a new, non-free OS now since from day 1 it would have to be not only better than Linux and BSD, but significantly better.
dagw 16y ago
Perhaps a good balance is, instead of free, charge a small one time setup fee. pinboard.in for example does this and it seems to work really well. They offer a premium version with a monthly fee and a "free" version, which cost something like $5 or $6 to set up. To me, the difference between free and a one time $5 fee was minimal, but to the people running the site difference in revenue is probably pretty huge.
- chc 16y ago
  That's worse IMO. Maybe the $6 is minimal for you, but it's not in the average case. Studies have shown that there is an enormous difference between "free" and "cheap" in people's minds. The difference between free and $1 is bigger than the difference between $1 and $10 in terms of customer resistance. The point of a free product is to eliminate barriers to entry. Most people are not that dedicated, and even the smallest snag in the conversion process can shoot them out of the funnel. Charging a small setup fee combines the worst aspect of pay (much harder to gain users) with the worst aspect of free (anemic revenue).
danfitch 16y ago
For the launch of my next site I am going to do a limited number of free accounts a day(starting at different times in the day). Then you won't get overrun with free users, but allow people to give you their email to let them know when more free accounts are available. Not sure if this will help but worth a shot. Might force people to try it paid if they don't want to wait.
- horacegrant 16y ago
  Just seems a bit arbitrary to me.
arnorhs 16y ago
I would argue that in order for a free account to work you will have to meet the following criteria: - The free account is only useful while you're starting to use it - so a real constraint has to be in place for you to want to upgrade. - Your product has to be useful enough on it's own. - Your product is not too niche. If the percentage of people on planet earth that can benefit from your product is low, then there will be less chance that a user finds somebody else to recommend the product to. I haven't looked at Bidsketch, but if people are signing up for free and the free plan has enough constraints in place but people are still not upgrading, that could be a sign that people don't like the product enough or don't get enough value out of it. Also, the article doesn't state what features the free plan had, but if the free plan used to be what is now "basic plan", maybe the free plan was too good ? The website looks good btw. edit: added a bullet point
- arnorhs 16y ago
  You would also have to measure and account for over how much time the free users convert to paid users. If it happens over two years, you have to take that into account. As the gigaom article mentions: The thing is, over time inactive users drop off, and active users start paying. Once Evernote finally figured that dynamic out and started talking about it, term sheets and partnerships requests started flowing in, Libin said.
krschultz 16y ago
Startups are too skiddish about charging. This shouldn't be novel or surprising, this is regular business 101. Businesses charge money for useful products. People are used to paying for useful products. The only difference is that the variable costs associated with hosting more users are tiny. How much does each user cost you? Basically nothing in the scheme of things. The problem is that the fixed costs are high - development, overhead, etc. Just becuase the variable costs are low doesn't mean you can't charge your users for the fixed costs. Other businesses do this all the time. Startups should not be afraid of charging their fixed costs on to their customers. Advertising is fine if you are a media website and are trying to be an online newspaper or a website with no real function at all, but if you are a full fledged web app with useful features, CHARGE!
- chmike 16y ago
  The freemium model pertinence depends indeed on the free user cost. A service for which the cost in minimal (i.e. no support, low bandwidth or storage needs,...) for free users, could benefit from it as a marketing tool. The perceived added value for paying users should be significant, obvious and justify the fee.
mrbird 16y ago
This is also an important consideration when trying to evaluate (and iterate on) user feedback. The type and quality of feedback that you get from paying customers is often completely different than what you get from non-paying users. Paying customers bring higher, and more importantly, more precise expectations of how your product should work for them. If you listen carefully, they'll tell you what your product needs to be. You'll have fewer users, but you'll actually have a product, rather than a service that tries to be everything to everyone.
geuis 16y ago
I just finished FREE by Chris Anderson. It's a free download at Audible.com. I highly recommend that people listen to the book as it's only about 6 hours long.
aycangulez 16y ago
A free plan is often a replacement for advertising spending. It gets you users who wouldn't otherwise consider using your product, and you hope that they would tell their friends about it, and some of those friends would eventually pay. Here is an extreme example: If I remember it correctly, MySQL's conversion rate was quoted as about 1 in 1000. If they didn't distribute the entire product for free, they would have much less market penetration, but certainly earned much more. Had they chosen that route, they wouldn't be able to sell the company for a cool billion. Nothing in life is free. If you want a lot of users, and don't have the advertising budget for it, you give some or all of your product away for free.
sentinel 16y ago
My 2 cents: He did get a lot of exposure from the free plan, so at least at the beginning, a free plan is a great way to start a user base. It is true that after that you will need to balance things out so that you don't get too many free users when compared to paying users. But like the guy says, it's also about looking at your business and making a decision about whether this sort of free-plan offer is sustainable for your situation. For some companies it is and is part of the business plan, whereas for others it doesn't really help.
VBprogrammer 16y ago
I feel this really should have been titled "Why My Free Plan Didn’t Work." Since free plans have and will continue to work for some people. I don't know about you but I doubt GitHub would have taken off had it been exclusively pay-ware. Even if it did gain some traction someone would have made a free with upgrade option version of it.
- shantanubala 16y ago
  The main thing with GitHub that makes it a great example of freemium is that they have two separate audiences for free and paid accounts. The free accounts are for open source projects and random hackers who write code for fun. By doing this, they attract talent and popularity to their service that convinces a different audience (businesses) to pay. GitHub probably still has many more free than paid users, but the upfront cost was probably well worth it in the end.
  - xiongchiamiov 16y ago
    I would guess that there are a decent number of paid users who aren't "businesses", but just people. I myself have a paid account because: 1. I want private repositories for school work and cba to set them up on my own server. 2. I run my website off of github, and only paid accounts get CNAME support. 3. I think they're awesome guys, and I want the service to stay around. This is the most important one.
loumf 16y ago
I am on the mailchimp free plan. One reason I think it works for them is that it's impossible to stay on the free plan if you are successful. It's nice to not have to pay while I'm building my list and don't get much value out of it yet. But every day, as my list grows, I know I'm going to have to pay -- at that point it would be silly to cancel. Another reason it works for them, is that many of their customers probably start with a list -- in that case, it's not free (if you have over 500 subscribers)
ww520 16y ago
What does it mean for the IPhone/Android apps then? Does it make sense to have a lite/free version of an app?
run4yourlives 16y ago
The conclusion that "Free plans don't work" has been overly extended from data that doesn't suggest anything of the sort. What the data does suggest is that his free plan is meeting a majority of his user's needs, and hence the "extras" that people get for upgrading are not selling. What he needs to do is reduce the free plan so that more users' needs are addressed in one of the paid plans.
petenixey 16y ago
This was the same conclusion that Homestead reached. They initially launched with a fremium model but after being deluged in freebie support costs switched to credit-card-required. Although their overall signups plummeted, their paying signups went up by multiples. It would be interesting to see if being freemium for a limited period at the very start is a profitable way to promote the company. Has anyone ever done a "get a free account now - available only for the next 30 days" experiment during launch?
dbrannan 16y ago
After reading the article we've made the free option less visible (www.examprofessor.com), and perhaps we'll remove it completely one day soon. Nice article!
aneth 16y ago
Free plans work if they are inadequate for customers who can afford to pay, but adequate for a taste. Less Accounting does a great job of this. The only reason not to offer such a plan would be the resources it requires to support free customers, and perhaps that it has a negative price anchoring effect.
willheim 16y ago
The article makes excellent points all around. The #1 goal of any business is to gain positive cash flow (revenues greater than expenses). Anything else sinks your business. It's high time start-ups learned that lesson. Sure, starting out you need to gain traction. You do that by: 1) having a superior product 2) gaining a superior rep The only way to have a superior product is to identify your target market. Nothing in life is "free". If you want to offer a service to your clients that cost them nothing out of pocket you better be pulling in revenue in other ways (advertising or info selling). Since many are averse (privacy issues and ad-block) to those other options you must charge your user base. Your product doesn't have to be the one with the most features, just the one whose features are the best executed. Your product has to meet the client's needs. If you don't know who your target client is (Everybody is not an appropriate answer) then you need to refine your pitch. Part of client needs eventually comes down to support and interaction. If you spend all your resources (time, server, bandwidth, development opportunities) supporting a vast number of free clients at the expense of revenue generating clients you will quickly gain no to poor reputation. Note: I tried to figure out what Evernote is doing. Their free service does meet the vast majority of user's needs (including mine). The amazing thing is that their service is so simple and straight forward that perhaps they don't need to spend so many resources on support and with the API (Trunk) and partnerships their development/expansion costs are now being taken on by so many other parties. I'm sure they bled cash brutally at the beginning but their product was so novel and amazing that VC money came to the rescue. Fact is that there are few start-ups in such a position. There are also few products out there so novel that users talk about not "needing to" but "wanting to" contribute to their success. Twitter? Ha! But Evernote is different. People want to pay them for their service even if they don't need to upgrade. They just love it so much. That is a truly rare and beautiful thing.
ivankirigin 16y ago
If you get someone in the door, you can upsell them _eventually_. You have a long time to go. I don't know if the relationship between company and user is the same in the current mobile app marketplace. Also, many freemium companies are actually enterprise companies in disguise, where the pricing plans really work best for larger organizations over individuals. Free users are a loss leader to enterprise sales. Generally, I wouldn't paint with such broad brush strokes. Free can work. Free might crater for you. Look hard at your product and market when designing your pricing.
bartwe 16y ago
Free plans do work as a way to get a critical mass it seems.
acabal 16y ago
My site uses a freemium model, and in some ways it kind of has to. The site is a social-network type site where writers critique each other's work. Members can join for free, but their accounts have lots of limitations that are lifted by paying a monthly fee. For my site, the most important part is having active members, whether they're paying or not. If nobody is active on the site to critique writing, then new writers won't join. Having a pay barrier to joining a community like this one would very quickly strangle it. Like most freemium plans, only a small percentage convert to a paid plan, but enough do to keep making it worthwhile. I even doubled the price of the paid plan at one point to see if it would affect conversions, and it didn't, so people are finding the model useful. So freemium works for a model like mine; but for many web apps, especially ones where the customer sets-and-forgets it, it might not make as much sense.

318 points by nsoonhui 16y ago

scrrr 16y ago

Yes, but would those companies have become popular if there hadn't been a free version in the beginning? Would as many invest in an unknown product in the beginning to eventually make it known?

eldimo 16y ago
That's why you offer free trials. :)
- scrrr 16y ago
  So the real advice is: Offer free accounts and then get rid of them.
  - meric 16y ago
    I wonder how well offering free accounts, getting rid of them and then grandfathering the free account users would work. How would the free users who have exclusive free accounts behave? Will they be more likely to promote your product (aka bragging) or would they be inclined to try to sell their account to someone?
  - dagw 16y ago
    That was basically what I took away from the article. Start by offering free accounts until you gain some sort of traction and people become aware of your product, but once you start getting significant traffic stop with the free.
    - hasenj 16y ago
      Something else to take away: don't require people to give away their billing information upfront when signing up for a trial; simply downgrade their account if the trial period ends and they haven't paid yet.
  - revorad 16y ago
    I didn't see that being advised anywhere in the article. I think the author is implicitly recommending limited free trials, which make perfect business sense.
alttab 16y ago
This only works if the user base also evangelizes. Your model wouldn't work well if they say "Use BidSketch, its free and awesome!" and then they went there and it wasn't free, they wouldn't sign up for a paid account because their initial impression was they didn't need their wallet. There are free/paid products that have been around for a fistful of years that people still accidentally stumble on. Because we spend so much time on the web we think others watch whats happening all the time and catch our moves. From a marketing perspective, you have to tell the same story for 12-18 months before it becomes "common knowledge" and you need the right PR connections. You could change your App's name and logo 10 times in 6 months and no one would really notice except for your users. More simply put: most people don't know if a product is "known" or "unknown" - they simply decide if it does what they are looking for and make their decision based on that. You are not your user, something we developers tend to forget from time to time.
revorad 16y ago
Yes, but would those companies have become popular You hit the nail on the head there. Web startups have become a popularity contest. Instead of building really good products and selling them for a price, people are trying to get as many users as possible and then tinker with all sorts of metrics to get "conversions". I can see the reason for doing this if you have big investors and want to sell to a big company one day. But, it seems like a really poor strategy if you want to build a profitable business.

someone_here 16y ago

0.8% of free user accounts eventually upgraded to paid. When only 1% of users were using paid?! That's doubling your paid user-base!

loewenskind 16y ago
But how many free users came in in the mean time? Maybe the raw number was doubling but the paid user percentage wasn't. And even it was he found a way to get an 800% increase.
- Ardit20 16y ago
  He said the revenue was remaining flat. That is the revenue was not increasing, so the core number of paid users was not increasing either.

loewenskind 16y ago

Looks like "the web changes everything" is coming around full circle. To see the future one need only look in the past. What are retailers doing today? They've been at this for, what? Thousands of years, right? In other words: some things are going to be expected to simply be provided (e.g. free wifi at starbucks). Some things people are just not going to pay much for, not even as much as you did (e.g. loss leaders like Milk). Some things you can mark way up.

noverloop 16y ago

I think you should use a free plan if actively using the 'free' plan will eventually force the user to go to a paid plan. e.g. dropbox. If you just give your core product away for free then users will only switch if they need the extra features of the paid plan. You can still use 'free' for marketing, because total conversion rates with a free plan will probably be higher, just don't expect these 'free' customers to switch if they don't have to.

kranner 16y ago
I think you just persuaded me to double the quota on my free plan (non-recurring, pay-per-use plan)
revorad 16y ago
Is there any evidence that Dropbox's conversion rates are higher than the other apps the OP cites?
Groxx 16y ago
I'll admit I'm a free-dropboxer, but that's almost exclusively because their plans are all too large and too expensive. I'm one of the multitude calling for a 10gb / 20gb plan. I've got photos elsewhere, but my main set of stuff I'd store is only about 5gb, and duplicating that (much less the 50gb of their smallest paid plan) to every computer is a waste - I'm using it for temporary storage and backup, across two (eventually 3) operating systems, none of which are more than 50% happy with each others formats without freaking out the next application I use. In the meantime, though, my main Google account has 20gb for $5/year, and for the equivalent-lowest of 50gb/$100 I can get 400gb, which will also store my emails and photos. I can back up any email account on my machine by dragging the messages to a gmail folder, and waiting a little while. Docs now allows 1gb any-kind file uploads. I can send my photos to Picasa (the reason I have the extra space). I'm a massive word-of-mouth spreader of Dropbox though, especially as I'm the Geek of a few families + their neighbors. I've probably gotten them more business than what I cost to host.
nhebb 16y ago
The problem with dropbox is that they don't have a client for automating backups. That means everything I store there has been manually dragged into the dropbox folder (see NB). It would take me a long time before the number of files I needed to share online exceeded their free limit. NB: Truth be told, I run batch files via task scheduler for backing up certain folder to dropbox, but I doubt the typical consumer does.

angstrom 16y ago

I expect in the near future we'll see more Trial Membership Plans ala Netflix and others and the Free Plan will be removed in favor of a demo example or a "nearly free" plan.

zatara 16y ago

"... led to an 8x increase in paid conversions. Look at that again. That’s not 8%. That’s 800%." Technically, a 700% increase.

kranner 16y ago
Good point, but he did say "increase". Perhaps he meant x+8x?

paraschopra 16y ago

I recently wrote a post tracking evolution of pricing plan of a company (Clicktale) over last 4 years. Even though they still have the free plan, the prices of individual plans increased 10x in four years: http://visualwebsiteoptimizer.com/split-testing-blog/how-pricing-plans-evolved-over-time-for-a-saas-startup/ http://visualwebsiteoptimizer.com/split-testing-blog/how-pri...

emanuer 16y ago

I was just thinking this about Evernote the other day. I really want to pay them. They make a great product that serves me very well. I do believe they deserve my money. The problem is, the payed plan would be a complete waste for me. I don't need it. The free thing fulfills my needs perfectly. If it would be a 30 days trial, I would be a happily paying customer by now. The same thing is true for dropbox for me. After the first month I was actively looking for a "donate" button on their website. I love the product, it works perfect, I would pay for it without thinking a second, I just have no need for the paid plan. I understand the free plans are for marketing purposes. In my case I had more than 10 different choices for a note taking application, or a online backups system. The factor that pushed me towards Evernote and Dropbox were the consistent great reviews. Free was the cherry on top, but not the reason why I choose those two apps.

rmc 16y ago
Why not buy the non-free plan for a week, then cancel? Or email them. They might use PayPal, perhaps you could transfer money in there if you know the right account.
- emanuer 16y ago
  Most important reason: laziness I am not going out of my way to give them money. However I am perfectly willing to pay when they change their price structure. [For dropbox I found their prices per GB are almost double of cheaper competitors. They could charge much less per GB if they would get money from more customers]
  - Groxx 16y ago
    Vs Google's storage costs (Docs lets you store up to 1gb files of any kind), they're 8x more expensive (400gb for $100 vs 50gb). Granted, the service is very different, and Google is ever-so-slightly larger. It's still a big jump.
Groxx 16y ago
I'm not touching Evernote again until they get exporting features. It's a really impressive, useful service, but despite their repeated claims of supporting open formats they've provided utterly squat in the past few years I've watched them. Years. More than enough time to write exporters (not even .txt / .rtf!) if they value it at all.

bmcnamara82 16y ago

Instead of saying that "free" plans don't work outright, I argue that they work for some type of products and don't work for other products. He provided examples of niche products that so far, serve small markets. LessAccounting, Crazy Egg, - what is their user base numbers? One example he gives has a user base of 5,000 users. If you are a niche product, I don't think the free plan is ideal since you are serving a small market and need to build a user base before it makes sense. Conversely, if you have an app that is going to get a really large user base, and I'm talking 'millions', then it probably will work (i.e. google, twitter, facebook, ect.). The example of those are far and few. The other comment I would make is, maybe you aren't creating a compelling enough product to get a user demand that supports a 'freemium' biz model.

michael_dorfman 16y ago
Conversely, if you have an app that is going to get a really large user base, and I'm talking 'millions', then it probably will work (i.e. google, twitter, facebook, ect.) Actually, not. None of those are using a "freemium" model; they are all ad-based products. If your business model is dependent upon giving advertisers eyeballs, "free" is a great way to go-- but that has nothing to do with the topic at hand.
- bmcnamara82 16y ago
  "Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base." From Fred Wilson's mouth (he coined the term "Freemium")
  - revorad 16y ago
    acquire a lot of customers very efficiently First of all, people who don't pay are users, not customers. Secondly, how are conversion rates of less than 2% considered efficient? In the freemium model, even if cost of customer acquisition (COCA) for a free "customer" can be considered to be zero, Life Time Value (LTV) is increasingly negative.

clistctrl 16y ago

Maybe he should also consider changing the text on the register button? http://www.bidsketch.com/ http://www.bidsketch.com/

revorad 16y ago
There is a 30-day free trial.

shadowsun7 16y ago

I loved this article, but after thinking about it for a bit I realize that there is an argument for going free. Two pretty strong ones, in fact. 1) If you want to get acquired - and we're talking about a big acquisition here - it would do to go free so you manage to score a big-enough user base to get noticed. And so the bigger company is interested in acquiring you not only for your technology, but also for your users. (That said, acquisition may be a risky bet.) 2) Going free also makes sense if you want total market dominance. In which case, free is really the only way to go. The writer is speaking from the POV of a micropreneur, and it makes sense for him to retract his free plan (in fact, it makes sense for 37signals/the 37signals model to do so too). But if you're in the position of being the next Facebook, going free and dominating the market is really the best thing to do. (Or Youtube, or Google, or Flickr). You find lots of users, lock out the competition, and then you can figure out how to monetize. Which only goes to show that there are all kinds of businesses out there, and the advice you read on the net really should be done through the context of your particular business and/or market.

revorad 16y ago
Going free also makes sense if you want total market dominance. In which case, free is really the only way to go. No it's not. The other way is to make the best damn product in the market. I hate to give cliched examples, but since we are talking market dominance, see Windows, Adsense and iPod.
- damoncali 16y ago
  I can see iPod and Adsense, but Windows? Windows won for very, very different reasons. When Windows first appeared, it was far from the best product on the market. It won because it was already everywhere (because of DOS). Microsoft practically invented the "give it away to ensure market dominance" game (Ok, slight hyperbole there). It took the court system to slow them down.
  - blacksmythe 16y ago
    I agree. I think it would be almost impossible to introduce a new, non-free OS now since from day 1 it would have to be not only better than Linux and BSD, but significantly better.

dagw 16y ago

Perhaps a good balance is, instead of free, charge a small one time setup fee. pinboard.in for example does this and it seems to work really well. They offer a premium version with a monthly fee and a "free" version, which cost something like $5 or $6 to set up. To me, the difference between free and a one time $5 fee was minimal, but to the people running the site difference in revenue is probably pretty huge.

chc 16y ago
That's worse IMO. Maybe the $6 is minimal for you, but it's not in the average case. Studies have shown that there is an enormous difference between "free" and "cheap" in people's minds. The difference between free and $1 is bigger than the difference between $1 and $10 in terms of customer resistance. The point of a free product is to eliminate barriers to entry. Most people are not that dedicated, and even the smallest snag in the conversion process can shoot them out of the funnel. Charging a small setup fee combines the worst aspect of pay (much harder to gain users) with the worst aspect of free (anemic revenue).

danfitch 16y ago

For the launch of my next site I am going to do a limited number of free accounts a day(starting at different times in the day). Then you won't get overrun with free users, but allow people to give you their email to let them know when more free accounts are available. Not sure if this will help but worth a shot. Might force people to try it paid if they don't want to wait.

horacegrant 16y ago
Just seems a bit arbitrary to me.

arnorhs 16y ago

I would argue that in order for a free account to work you will have to meet the following criteria: - The free account is only useful while you're starting to use it - so a real constraint has to be in place for you to want to upgrade. - Your product has to be useful enough on it's own. - Your product is not too niche. If the percentage of people on planet earth that can benefit from your product is low, then there will be less chance that a user finds somebody else to recommend the product to. I haven't looked at Bidsketch, but if people are signing up for free and the free plan has enough constraints in place but people are still not upgrading, that could be a sign that people don't like the product enough or don't get enough value out of it. Also, the article doesn't state what features the free plan had, but if the free plan used to be what is now "basic plan", maybe the free plan was too good ? The website looks good btw. edit: added a bullet point

arnorhs 16y ago
You would also have to measure and account for over how much time the free users convert to paid users. If it happens over two years, you have to take that into account. As the gigaom article mentions: The thing is, over time inactive users drop off, and active users start paying. Once Evernote finally figured that dynamic out and started talking about it, term sheets and partnerships requests started flowing in, Libin said.

krschultz 16y ago

Startups are too skiddish about charging. This shouldn't be novel or surprising, this is regular business 101. Businesses charge money for useful products. People are used to paying for useful products. The only difference is that the variable costs associated with hosting more users are tiny. How much does each user cost you? Basically nothing in the scheme of things. The problem is that the fixed costs are high - development, overhead, etc. Just becuase the variable costs are low doesn't mean you can't charge your users for the fixed costs. Other businesses do this all the time. Startups should not be afraid of charging their fixed costs on to their customers. Advertising is fine if you are a media website and are trying to be an online newspaper or a website with no real function at all, but if you are a full fledged web app with useful features, CHARGE!

chmike 16y ago
The freemium model pertinence depends indeed on the free user cost. A service for which the cost in minimal (i.e. no support, low bandwidth or storage needs,...) for free users, could benefit from it as a marketing tool. The perceived added value for paying users should be significant, obvious and justify the fee.

mrbird 16y ago

This is also an important consideration when trying to evaluate (and iterate on) user feedback. The type and quality of feedback that you get from paying customers is often completely different than what you get from non-paying users. Paying customers bring higher, and more importantly, more precise expectations of how your product should work for them. If you listen carefully, they'll tell you what your product needs to be. You'll have fewer users, but you'll actually have a product, rather than a service that tries to be everything to everyone.

geuis 16y ago

I just finished FREE by Chris Anderson. It's a free download at Audible.com. I highly recommend that people listen to the book as it's only about 6 hours long.

aycangulez 16y ago

A free plan is often a replacement for advertising spending. It gets you users who wouldn't otherwise consider using your product, and you hope that they would tell their friends about it, and some of those friends would eventually pay. Here is an extreme example: If I remember it correctly, MySQL's conversion rate was quoted as about 1 in 1000. If they didn't distribute the entire product for free, they would have much less market penetration, but certainly earned much more. Had they chosen that route, they wouldn't be able to sell the company for a cool billion. Nothing in life is free. If you want a lot of users, and don't have the advertising budget for it, you give some or all of your product away for free.

sentinel 16y ago

My 2 cents: He did get a lot of exposure from the free plan, so at least at the beginning, a free plan is a great way to start a user base. It is true that after that you will need to balance things out so that you don't get too many free users when compared to paying users. But like the guy says, it's also about looking at your business and making a decision about whether this sort of free-plan offer is sustainable for your situation. For some companies it is and is part of the business plan, whereas for others it doesn't really help.

VBprogrammer 16y ago

I feel this really should have been titled "Why My Free Plan Didn’t Work." Since free plans have and will continue to work for some people. I don't know about you but I doubt GitHub would have taken off had it been exclusively pay-ware. Even if it did gain some traction someone would have made a free with upgrade option version of it.

shantanubala 16y ago
The main thing with GitHub that makes it a great example of freemium is that they have two separate audiences for free and paid accounts. The free accounts are for open source projects and random hackers who write code for fun. By doing this, they attract talent and popularity to their service that convinces a different audience (businesses) to pay. GitHub probably still has many more free than paid users, but the upfront cost was probably well worth it in the end.
- xiongchiamiov 16y ago
  I would guess that there are a decent number of paid users who aren't "businesses", but just people. I myself have a paid account because: 1. I want private repositories for school work and cba to set them up on my own server. 2. I run my website off of github, and only paid accounts get CNAME support. 3. I think they're awesome guys, and I want the service to stay around. This is the most important one.

loumf 16y ago

I am on the mailchimp free plan. One reason I think it works for them is that it's impossible to stay on the free plan if you are successful. It's nice to not have to pay while I'm building my list and don't get much value out of it yet. But every day, as my list grows, I know I'm going to have to pay -- at that point it would be silly to cancel. Another reason it works for them, is that many of their customers probably start with a list -- in that case, it's not free (if you have over 500 subscribers)

ww520 16y ago

What does it mean for the IPhone/Android apps then? Does it make sense to have a lite/free version of an app?

run4yourlives 16y ago

The conclusion that "Free plans don't work" has been overly extended from data that doesn't suggest anything of the sort. What the data does suggest is that his free plan is meeting a majority of his user's needs, and hence the "extras" that people get for upgrading are not selling. What he needs to do is reduce the free plan so that more users' needs are addressed in one of the paid plans.

petenixey 16y ago

This was the same conclusion that Homestead reached. They initially launched with a fremium model but after being deluged in freebie support costs switched to credit-card-required. Although their overall signups plummeted, their paying signups went up by multiples. It would be interesting to see if being freemium for a limited period at the very start is a profitable way to promote the company. Has anyone ever done a "get a free account now - available only for the next 30 days" experiment during launch?

dbrannan 16y ago

After reading the article we've made the free option less visible (www.examprofessor.com), and perhaps we'll remove it completely one day soon. Nice article!

aneth 16y ago

Free plans work if they are inadequate for customers who can afford to pay, but adequate for a taste. Less Accounting does a great job of this. The only reason not to offer such a plan would be the resources it requires to support free customers, and perhaps that it has a negative price anchoring effect.

willheim 16y ago

The article makes excellent points all around. The #1 goal of any business is to gain positive cash flow (revenues greater than expenses). Anything else sinks your business. It's high time start-ups learned that lesson. Sure, starting out you need to gain traction. You do that by: 1) having a superior product 2) gaining a superior rep The only way to have a superior product is to identify your target market. Nothing in life is "free". If you want to offer a service to your clients that cost them nothing out of pocket you better be pulling in revenue in other ways (advertising or info selling). Since many are averse (privacy issues and ad-block) to those other options you must charge your user base. Your product doesn't have to be the one with the most features, just the one whose features are the best executed. Your product has to meet the client's needs. If you don't know who your target client is (Everybody is not an appropriate answer) then you need to refine your pitch. Part of client needs eventually comes down to support and interaction. If you spend all your resources (time, server, bandwidth, development opportunities) supporting a vast number of free clients at the expense of revenue generating clients you will quickly gain no to poor reputation. Note: I tried to figure out what Evernote is doing. Their free service does meet the vast majority of user's needs (including mine). The amazing thing is that their service is so simple and straight forward that perhaps they don't need to spend so many resources on support and with the API (Trunk) and partnerships their development/expansion costs are now being taken on by so many other parties. I'm sure they bled cash brutally at the beginning but their product was so novel and amazing that VC money came to the rescue. Fact is that there are few start-ups in such a position. There are also few products out there so novel that users talk about not "needing to" but "wanting to" contribute to their success. Twitter? Ha! But Evernote is different. People want to pay them for their service even if they don't need to upgrade. They just love it so much. That is a truly rare and beautiful thing.

ivankirigin 16y ago

If you get someone in the door, you can upsell them _eventually_. You have a long time to go. I don't know if the relationship between company and user is the same in the current mobile app marketplace. Also, many freemium companies are actually enterprise companies in disguise, where the pricing plans really work best for larger organizations over individuals. Free users are a loss leader to enterprise sales. Generally, I wouldn't paint with such broad brush strokes. Free can work. Free might crater for you. Look hard at your product and market when designing your pricing.

bartwe 16y ago

Free plans do work as a way to get a critical mass it seems.

acabal 16y ago

My site uses a freemium model, and in some ways it kind of has to. The site is a social-network type site where writers critique each other's work. Members can join for free, but their accounts have lots of limitations that are lifted by paying a monthly fee. For my site, the most important part is having active members, whether they're paying or not. If nobody is active on the site to critique writing, then new writers won't join. Having a pay barrier to joining a community like this one would very quickly strangle it. Like most freemium plans, only a small percentage convert to a paid plan, but enough do to keep making it worthwhile. I even doubled the price of the paid plan at one point to see if it would affect conversions, and it didn't, so people are finding the model useful. So freemium works for a model like mine; but for many web apps, especially ones where the customer sets-and-forgets it, it might not make as much sense.