5 ms·

Offer a compelling free service that reels users in and then sell added-extras in the subscription account that they can't live without - aka the "freemium" mod

by whyleyc 18y ago

Offer a compelling free service that reels users in and then sell added-extras in the subscription account that they can't live without - aka the "freemium" model. This is what 37Signals do so well, we operate a similar model at Zamzar and more recently Animoto seem to have struck gold with this approach - with them you can cut a 30 second video mix of photos and music, but if you need more time you have to pay.

petercooper 18y ago
Seconded. This is what I did with a company I started three years ago (and sold, at a good profit, last year). The audience was there, and they were used to getting similar services for free. By having a few extra killer features and being more innovative generally, 5% of free users converted to paying subscribers. Sadly this percentage was far too low for it to become a 'big' business and my knowledge of how to grow a company was very poor back then (I used to believe you got the product right, then sold it.. no sirree, that's not how big business really works).
- bkovitz 18y ago
  What were the services and new features? And of course, how did you find those first few customers, so you could tell that they really liked the new services and features well enough to pay for them?
  - petercooper 18y ago
    Good questions. It was an RSS filtering, reformatting and republishing service, so the audience was mostly geeks and what I call "media geeks".. people who run Web sites who wanted to republish blended feeds on their sidebars, stuff like that. One important unique feature in our case was that NO "Powered by Whatever" nonsense was added into the republished versions people put on their sites. Secondly, we let people blend feeds, rather than just republish a single one (this was very new in 2005!). We also supported filter by query, stuff like that. Oh, and perhaps biggest of all was allowing users to ENTIRELY change the template, free-form. We had predefined templates, but gave the user TOTAL control over the output. I'm not really sure about how those people found the service. There were a few minor writeups on reasonably unpopular blogs at the time, but 100 signups a day were coming in so I didn't care. Unfortunately I focused on the technology instead of the business so never bothered to keep track of it.
    - trevelyan 18y ago
      >> (I used to believe you got the product right, then sold it.. no sirree, that's not how big business really works). What would you have done differently in retrospect?
      - petercooper 18y ago
        I'll say what I'd do now, and what I'm about to do on the "next" thing, having gained quite a lot of education and mentoring on the "business" side of things since then. I'd start selling. Day one. Even if the product or service I'm selling still needs to be developed, I'd work out who wants what I'm developing, what they'll pay for it, and how I can sell to them. Once I have the product working in a saleable form (think 37signals "Getting Real" levels of "done" here - not perfectionism at all), I'd switch 80% of energy to selling it. Cash is king. With cash coming in, I can pay other people to do the grunt work as well as work on improving the product. But.. selling is absolutely key. Last time I focused on making a kick ass product, and it worked, but I didn't know who the market was, and all the sales were from luck alone. I didn't sell the product whatsoever. It sold itself, but that's not a good strategy unless you have a mass market product. If you have a niche product, you need to be selling it yourself from day one. I would highly recommend a book called "Ready, Fire, Aim" by Michael Masterson ( http://www.amazon.com/Ready-Fire-Aim-Million-Agora/dp/0470182024 http://www.amazon.com/Ready-Fire-Aim-Million-Agora/dp/047018... ). It outlines the whole process of successfully generating a high revenue business from start to finish, and is written by someone who has launched several businesses that have gone on to reach 8 and 9 figure revenues.
manmanic 18y ago
I can vouch for the freemium approach. Your free service is there to create word-of-web and word-of-mouth growth. You may even want to hold off on the premium version for a year or so. There's some conflict between being non-commercial and buzzworthy, and pushing your premium version to get subscriptions. Learning about your customer is crucial. The easy and cheap way to do this is run a survey on your site, while your service is still in the free phase. You can promote this survey aggressively to a portion of your user base and expect around a 15% response rate. One of my businesses had some obvious quantifiable differences between a free and premium version, so the survey included these 3 questions: * Would you be willing to pay more for an enhanced service? * How many Xs, Ys and Zs would you want? * How much would you be willing to pay for this per month? After collecting thousands of responses, I ran them through a Bayesian clustering algorithm (which can handle missing answers) and it spat out a bunch of service levels and price points that made a lot of intuitive sense. These were $5, $10 and $20/month, and later we added $40/month. Interestingly there was one big cluster that wanted the world for $1/month, whom we naturally decided not to cater for. We also learned that some features, such as RSS, didn't correlate at all with people's willingness to pay, so we added them into the free version. Net result after a few years is about 1.5% of active users are on one of the premium levels, with the number approximately halving as you go from each price point to the next. Since the price doubles at each level, the total revenue from each price point is about the same. And it's a very tidy living for me and my partner. One last thing: pay a lot of attention to what happens when people's subscriptions end involuntarily, because their credit card expired or stopped accepting payments. This happens a lot. You want to target these people with reminders about the premium service's benefits, and a discount promotion to sign up again with their new card.
webwright 18y ago
I tell you what we did (which seems to be working): 1) Launch your free product (the free part of the freemium). 2) By the time you get it tuned up, you'll have a strong sense of where the pain is (and hopefully a reasonable guess of where to put the pay wall). 3) Put up a little permission marketing form that essentially says, "Hey-- we're going to launch a premium product soon that does this, this, and this. If you want to hear about the launch, give us your email address". Measure how many of your free customers sign up for that. 4) Look at the resultant list for interesting email addresses and send a personal email to some of them asking them if they'd want to dive in as pilot customers and help shape the product. #3 helps you confirm your understanding of the value of your premium offering. #4 gets you your first customer. If you don't have the sales-fu to reach out to pilot customer candidates, just launch it quietly, email a subset of the list who signed up to hear about it, and measure signup percentage (which will be WAY lower than you think it will be).

by whyleyc 18y ago

petercooper 18y ago

Seconded. This is what I did with a company I started three years ago (and sold, at a good profit, last year). The audience was there, and they were used to getting similar services for free. By having a few extra killer features and being more innovative generally, 5% of free users converted to paying subscribers. Sadly this percentage was far too low for it to become a 'big' business and my knowledge of how to grow a company was very poor back then (I used to believe you got the product right, then sold it.. no sirree, that's not how big business really works).

bkovitz 18y ago
What were the services and new features? And of course, how did you find those first few customers, so you could tell that they really liked the new services and features well enough to pay for them?
- petercooper 18y ago
  Good questions. It was an RSS filtering, reformatting and republishing service, so the audience was mostly geeks and what I call "media geeks".. people who run Web sites who wanted to republish blended feeds on their sidebars, stuff like that. One important unique feature in our case was that NO "Powered by Whatever" nonsense was added into the republished versions people put on their sites. Secondly, we let people blend feeds, rather than just republish a single one (this was very new in 2005!). We also supported filter by query, stuff like that. Oh, and perhaps biggest of all was allowing users to ENTIRELY change the template, free-form. We had predefined templates, but gave the user TOTAL control over the output. I'm not really sure about how those people found the service. There were a few minor writeups on reasonably unpopular blogs at the time, but 100 signups a day were coming in so I didn't care. Unfortunately I focused on the technology instead of the business so never bothered to keep track of it.
  - trevelyan 18y ago
    >> (I used to believe you got the product right, then sold it.. no sirree, that's not how big business really works). What would you have done differently in retrospect?
    - petercooper 18y ago
      I'll say what I'd do now, and what I'm about to do on the "next" thing, having gained quite a lot of education and mentoring on the "business" side of things since then. I'd start selling. Day one. Even if the product or service I'm selling still needs to be developed, I'd work out who wants what I'm developing, what they'll pay for it, and how I can sell to them. Once I have the product working in a saleable form (think 37signals "Getting Real" levels of "done" here - not perfectionism at all), I'd switch 80% of energy to selling it. Cash is king. With cash coming in, I can pay other people to do the grunt work as well as work on improving the product. But.. selling is absolutely key. Last time I focused on making a kick ass product, and it worked, but I didn't know who the market was, and all the sales were from luck alone. I didn't sell the product whatsoever. It sold itself, but that's not a good strategy unless you have a mass market product. If you have a niche product, you need to be selling it yourself from day one. I would highly recommend a book called "Ready, Fire, Aim" by Michael Masterson ( http://www.amazon.com/Ready-Fire-Aim-Million-Agora/dp/0470182024 http://www.amazon.com/Ready-Fire-Aim-Million-Agora/dp/047018... ). It outlines the whole process of successfully generating a high revenue business from start to finish, and is written by someone who has launched several businesses that have gone on to reach 8 and 9 figure revenues.

manmanic 18y ago

I can vouch for the freemium approach. Your free service is there to create word-of-web and word-of-mouth growth. You may even want to hold off on the premium version for a year or so. There's some conflict between being non-commercial and buzzworthy, and pushing your premium version to get subscriptions. Learning about your customer is crucial. The easy and cheap way to do this is run a survey on your site, while your service is still in the free phase. You can promote this survey aggressively to a portion of your user base and expect around a 15% response rate. One of my businesses had some obvious quantifiable differences between a free and premium version, so the survey included these 3 questions: * Would you be willing to pay more for an enhanced service? * How many Xs, Ys and Zs would you want? * How much would you be willing to pay for this per month? After collecting thousands of responses, I ran them through a Bayesian clustering algorithm (which can handle missing answers) and it spat out a bunch of service levels and price points that made a lot of intuitive sense. These were $5, $10 and $20/month, and later we added $40/month. Interestingly there was one big cluster that wanted the world for $1/month, whom we naturally decided not to cater for. We also learned that some features, such as RSS, didn't correlate at all with people's willingness to pay, so we added them into the free version. Net result after a few years is about 1.5% of active users are on one of the premium levels, with the number approximately halving as you go from each price point to the next. Since the price doubles at each level, the total revenue from each price point is about the same. And it's a very tidy living for me and my partner. One last thing: pay a lot of attention to what happens when people's subscriptions end involuntarily, because their credit card expired or stopped accepting payments. This happens a lot. You want to target these people with reminders about the premium service's benefits, and a discount promotion to sign up again with their new card.

webwright 18y ago

I tell you what we did (which seems to be working): 1) Launch your free product (the free part of the freemium). 2) By the time you get it tuned up, you'll have a strong sense of where the pain is (and hopefully a reasonable guess of where to put the pay wall). 3) Put up a little permission marketing form that essentially says, "Hey-- we're going to launch a premium product soon that does this, this, and this. If you want to hear about the launch, give us your email address". Measure how many of your free customers sign up for that. 4) Look at the resultant list for interesting email addresses and send a personal email to some of them asking them if they'd want to dive in as pilot customers and help shape the product. #3 helps you confirm your understanding of the value of your premium offering. #4 gets you your first customer. If you don't have the sales-fu to reach out to pilot customer candidates, just launch it quietly, email a subset of the list who signed up to hear about it, and measure signup percentage (which will be WAY lower than you think it will be).