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I personally can't wait until the freemium model finally dies. It is extraordinarily difficult to pull off despite how popular it is and creates desperate decis

I personally can't wait until the freemium model finally dies. It is extraordinarily difficult to pull off despite how popular it is and creates desperate decisions like this.

digitalsushi 15y ago
I believe the model will be with us for as long as newly minted business people believe they can make the model work better than their predecessors.
- loceng 15y ago
  Not all businesses will have a viable freemium model, especially when you have a huge amount of competition in an area.
- andrewflnr 15y ago
  Some of them will even be right. This is why it will never really die.
rplnt 15y ago
There are many examples where freemium model works though.
- dean 15y ago
  I'm interested to see examples where the freemium model works. Could you provide any links? I've typically read that they don't work. For example: http://www.softwarebyrob.com/2010/08/18/why-free-plans-dont-work/ http://www.softwarebyrob.com/2010/08/18/why-free-plans-dont-...
  - jgmmo 15y ago
    Just in my industry: AVG, AVAST, AVIRA, BitDefender, MalwareBytes, SUPERAntiSpyware All offer a non-trial/non-expiring 100% free home user version of their security software, with a more feature rich premium option available for payment. Freemium works like gangbusters in some industries.
    - dean 15y ago
      It would be interesting to see some numbers though. I wonder what percentage of free users upgrade to a paid version. I wonder what it costs to support the free users. I have to assume it works for them, or they probably wouldn't have lasted as a company. But, speaking anecdotally, I've used several of these products and have never felt the need to upgrade. Also, you could make a case that these are not truly freemium, since any commercial use requires payment.
      - rplnt 15y ago
        AVG went public 2 weeks ago, some info might be available in their SEC filing.
        yread 15y ago
        AVAST went public in November, too
      - jgmmo 15y ago
        About 1% is a good estimate. At first glance you might think this is bad, but actually -- the freemium model provides boatloads of word of mouth. Even if only 1% buy - a large % of the other 99% are still satisfied and tell people, which throws more folks in the funnel and leaves the company with a large surplus of goodwill. We have people routinely write in to us - 'Ive used your product for years and it's worked so great I just want to help contribute' and so they buy a license - just out of gratitude from years of free service and not because they are looking for any of the Premium features. Regarding the 'cost of free users' - the cost is negligible. It's not like we write different definitions for the premium and the free - they all share the same definitions so there is not duplication of effort. Also, usually security software also acts as a 'data collector' in that it sends back suspicious files back to the lab for analysis. In this respect, having hundreds of thousands or millions of free users makes it easier to write definitions and protect all of our users because they provide us with more samples than we would of otherwise had access too. We actually ship a better product BECAUSE we have such a large # of users (both free and paying users).
  - neilk 15y ago
    Flickr was profitable even before acquisition with a freemium model. The free version of Flickr is exactly like the paid version except with upload caps per month. Dropbox has a freemium model and is probably profitable or on their way there. One thing both have in common: they are basically giving away disk space. Storage costs are trivial -- we're approaching pennies per GB -- but giving away CPU time or bandwidth is a much riskier proposition.
    - dean 15y ago
      Good examples, but I can't help feeling that there a lot of assumptions about profitability. Dropbox, for example, is a great service, I really like it. Every tech-savvy person I know uses it, but no one I know pays for it. I know this doesn't prove anything, but it makes me wonder if they are making money. Even if disk space is dirt cheap, it's still not free for them. I wonder how many paying users they need to cover the cost of all those free users.
- JS_startup 15y ago
  There might be a few, but I'd be willing to speculate that there are many MANY more examples where it did not work and the company either went under or had to perform a complete reversal like this one. I'm not saying freemium will never work, but let's face it: it's ubiquity is because it was at one time the flavor of the month startup model that VC money was pouring into, not because it is a superior or effective business model.
  - pavel_lishin 15y ago
    > I'd be willing to speculate that there are many MANY more examples where it did not work and the company either went under or had to perform a complete reversal like this one. So the freemium model is like any other small business?
    - andrewflnr 15y ago
      "There might be a few startups that work, but I'd be willing to speculate that there are many more examples where they did not work and the company either went under or had to perform a complete reversal." Not perfect correspondence, but pretty close. :)
  - rplnt 15y ago
    There are two things to consider when thinking about freemium. 1. Can you monetize free users with your product? In many cases you can, using ads, affiliate links, search partnership, ... 2. Is it cheap for you to support free users? This have to be compared to conversion rate. If it is really cheap to support free users than you can have bad conversion rate. In some specific cases the freemium model is the only model that works: products where interaction with other users is required for product to be usable. Only example I can think of right now are online games. You need players in order to attract more players, some of which may convert to be paying customers.
- bitwize 15y ago
  Free to play. Sell hats!
  - ConstantineXVI 15y ago
    This particular instance was: * Charge for your game * Build up a loyal fanbase * Continue to provide actual new content for players, for free. * Start selling hats * Stop charging for the game (nearly four years later). I wouldn't necessarily mark up TF2 as a freemium success as it only went to the model fairly late in it's life (after it had already more than made back it's budget, likely).
MicahWedemeyer 15y ago
I run a freemium business and it's very lucrative. I'm 99% sure that no one would sign up for the paid model straight up. Everything we offer is offered somewhere else for free, but we just package it all together in a much easier format. That's a tough sell out of the gate but once people get a taste of it, they understand why it's worth it to pay.
- dean 15y ago
  What's your conversion rate of free users to paid users?
tlogan 15y ago
Freemium is supposed to work because FREE is very powerful (read Predictably Irrational by Dan Ariely - chapter 3). You can get many users to sign up for free and they can be great advertisers for you. However, providing something for free can also trick you in deciding which features to build and whether people really want the thing you build. The difference between free and $1 is much bigger then $1 and $10. I believe that is where a lot fremium startups fail. They just assume 5% of free will convert. Nope: in many cases it is 0%. So I never sign up for service which is free and there is no way to upgrade to some paid version. Even if they are in beta.

I personally can't wait until the freemium model finally dies. It is extraordinarily difficult to pull off despite how popular it is and creates desperate decisions like this.

digitalsushi 15y ago

I believe the model will be with us for as long as newly minted business people believe they can make the model work better than their predecessors.

loceng 15y ago
Not all businesses will have a viable freemium model, especially when you have a huge amount of competition in an area.
andrewflnr 15y ago
Some of them will even be right. This is why it will never really die.

rplnt 15y ago

There are many examples where freemium model works though.

dean 15y ago
I'm interested to see examples where the freemium model works. Could you provide any links? I've typically read that they don't work. For example: http://www.softwarebyrob.com/2010/08/18/why-free-plans-dont-work/ http://www.softwarebyrob.com/2010/08/18/why-free-plans-dont-...
- jgmmo 15y ago
  Just in my industry: AVG, AVAST, AVIRA, BitDefender, MalwareBytes, SUPERAntiSpyware All offer a non-trial/non-expiring 100% free home user version of their security software, with a more feature rich premium option available for payment. Freemium works like gangbusters in some industries.
  - dean 15y ago
    It would be interesting to see some numbers though. I wonder what percentage of free users upgrade to a paid version. I wonder what it costs to support the free users. I have to assume it works for them, or they probably wouldn't have lasted as a company. But, speaking anecdotally, I've used several of these products and have never felt the need to upgrade. Also, you could make a case that these are not truly freemium, since any commercial use requires payment.
    - rplnt 15y ago
      AVG went public 2 weeks ago, some info might be available in their SEC filing.
      - yread 15y ago
        AVAST went public in November, too
    - jgmmo 15y ago
      About 1% is a good estimate. At first glance you might think this is bad, but actually -- the freemium model provides boatloads of word of mouth. Even if only 1% buy - a large % of the other 99% are still satisfied and tell people, which throws more folks in the funnel and leaves the company with a large surplus of goodwill. We have people routinely write in to us - 'Ive used your product for years and it's worked so great I just want to help contribute' and so they buy a license - just out of gratitude from years of free service and not because they are looking for any of the Premium features. Regarding the 'cost of free users' - the cost is negligible. It's not like we write different definitions for the premium and the free - they all share the same definitions so there is not duplication of effort. Also, usually security software also acts as a 'data collector' in that it sends back suspicious files back to the lab for analysis. In this respect, having hundreds of thousands or millions of free users makes it easier to write definitions and protect all of our users because they provide us with more samples than we would of otherwise had access too. We actually ship a better product BECAUSE we have such a large # of users (both free and paying users).
- neilk 15y ago
  Flickr was profitable even before acquisition with a freemium model. The free version of Flickr is exactly like the paid version except with upload caps per month. Dropbox has a freemium model and is probably profitable or on their way there. One thing both have in common: they are basically giving away disk space. Storage costs are trivial -- we're approaching pennies per GB -- but giving away CPU time or bandwidth is a much riskier proposition.
  - dean 15y ago
    Good examples, but I can't help feeling that there a lot of assumptions about profitability. Dropbox, for example, is a great service, I really like it. Every tech-savvy person I know uses it, but no one I know pays for it. I know this doesn't prove anything, but it makes me wonder if they are making money. Even if disk space is dirt cheap, it's still not free for them. I wonder how many paying users they need to cover the cost of all those free users.
JS_startup 15y ago
There might be a few, but I'd be willing to speculate that there are many MANY more examples where it did not work and the company either went under or had to perform a complete reversal like this one. I'm not saying freemium will never work, but let's face it: it's ubiquity is because it was at one time the flavor of the month startup model that VC money was pouring into, not because it is a superior or effective business model.
- pavel_lishin 15y ago
  > I'd be willing to speculate that there are many MANY more examples where it did not work and the company either went under or had to perform a complete reversal like this one. So the freemium model is like any other small business?
  - andrewflnr 15y ago
    "There might be a few startups that work, but I'd be willing to speculate that there are many more examples where they did not work and the company either went under or had to perform a complete reversal." Not perfect correspondence, but pretty close. :)
- rplnt 15y ago
  There are two things to consider when thinking about freemium. 1. Can you monetize free users with your product? In many cases you can, using ads, affiliate links, search partnership, ... 2. Is it cheap for you to support free users? This have to be compared to conversion rate. If it is really cheap to support free users than you can have bad conversion rate. In some specific cases the freemium model is the only model that works: products where interaction with other users is required for product to be usable. Only example I can think of right now are online games. You need players in order to attract more players, some of which may convert to be paying customers.
bitwize 15y ago
Free to play. Sell hats!
- ConstantineXVI 15y ago
  This particular instance was: * Charge for your game * Build up a loyal fanbase * Continue to provide actual new content for players, for free. * Start selling hats * Stop charging for the game (nearly four years later). I wouldn't necessarily mark up TF2 as a freemium success as it only went to the model fairly late in it's life (after it had already more than made back it's budget, likely).

MicahWedemeyer 15y ago

I run a freemium business and it's very lucrative. I'm 99% sure that no one would sign up for the paid model straight up. Everything we offer is offered somewhere else for free, but we just package it all together in a much easier format. That's a tough sell out of the gate but once people get a taste of it, they understand why it's worth it to pay.

dean 15y ago
What's your conversion rate of free users to paid users?

tlogan 15y ago

Freemium is supposed to work because FREE is very powerful (read Predictably Irrational by Dan Ariely - chapter 3). You can get many users to sign up for free and they can be great advertisers for you. However, providing something for free can also trick you in deciding which features to build and whether people really want the thing you build. The difference between free and $1 is much bigger then $1 and $10. I believe that is where a lot fremium startups fail. They just assume 5% of free will convert. Nope: in many cases it is 0%. So I never sign up for service which is free and there is no way to upgrade to some paid version. Even if they are in beta.