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my mattermap

Freemium: easy does it?

Mattermap door Esther van Rijswijk 30 september 2013

Freemium as a business model? Pro's and Con's

  • Con: you need big numbers of returning users...

    • The song says the love we take is equal to the love we make. Try telling that to all the entrepreneurs who give away their valuable work in the hope—often futile—of upselling a fraction of the freeloaders later on. ...»
      Brett Nelson Forbes online Bron:
    • A lot of people think the freemium model is sexy, but successful freemium businesses get you 3 percent conversions. You need a demonimator in the millions to have a viable business. That works in certain cases, but not if you’re going after a smaller segment. I often suggest that entrepreneurs offer a free trial rather than giving the product away for free. ...»
      Sean Jacobsohn Investor at Emergence Capital Bron: 02/07/2013
    • You need lots and lots of users. Freemium will only work if your idea has the potential to reach millions of active users. If it's more niche, you should go the premium route.
      Pascal-Emmanuel Gobry Senior analist at Business Insider Bron:
  • Con: it does not work on all markets

    • If you are selling to consumers or small companies that behave like consumers, moving away from the old enterprise sales and channel models may make perfect sense. However, if you plan to strike multimillion-dollar deals with enterprise companies, the chief information officer is still the chief decision-maker. ...»
      Christina Farr Bron: 06/11/2012
    • You need network effects. A network effect is what happens when a product or service becomes more valuable the more people use it. A phone isn't very useful if you can't call anyone else with it. But once everyone you know has a phone, it becomes a pretty valuable thing to have. If you're in a market that lends itself to network effects you're going to want to have a free basic product because if you don't someone else will and will use the network effects to crush you. ...»
      Pascal-Emmanuel Gorby, Ana Analist at Business Insider Bron: 08/04/2013
  • Pro: lower marketing costs...

    • Belangrijkste voordeel van gratis producten is dat je in korte tijd een gebruikersdatabase kunt opbouwen en je nauwelijks geld hoeft uit te geven aan marketing. De conversie naar betalende gebruikers blijft echter een uitdaging. Wat voor de een werkt, werkt niet voor de ander. ...»
      Jan Libbenga Bron: 27/12/2010
    • By definition, having a free product makes it really easy to get customers. And internet economics make this very attractive, because the marginal cost of every new free user will be very low. Free users can also be good marketing because even though a free user might not convert, they can invite other free users who might. ...»
      Business Insider Pascal-Emmanuel Gobry Bron: 08/04/2013
  • Con: it takes a lot of time

    • It takes time. A company using a freemium strategy has to be patient and must make it extremely easy for users to sign up. In Lemkin’s experience, it can take three months for a start-up company that signs up to use EchoSign extensively, and another three to give months before that user feels compelled to use the premium version of the product. This means that it takes a long time for the business to reach $10 million in sales, less time to double to $20 million and after that it starts growing virally ...»
      Adobe Bron: 12/07/2013
    • It takes a long time to be profitable.Because users take longer to convert as the value of the product to them increases over time, and because you keep adding (hopefully) new free users, freemium businesses take a long time to reach breakeven point. Once they do they can be very profitable, because your revenue per active user grows faster than your cost per active user, but it takes a while to reach breakeven. Equity financing (angels and VCs) or alternative sources of revenue can help you bridge the gap but not everyone has that opportunity or wants to do that. ...»
      Business Insider Bron:
    • The key insight Libin dicovered while building Evernote was that to make freemium work, you need to have a product or service whose value to the user increases over time. ...»
      Phil Libin Bron:
  • Pro: it does work for some..

    • Als je vandaag de dag een goed digitaal product maakt, kun je dat gratis weggeven en toch geld verdienen.
      Phil Libin CEO Evernote Bron: 29/04/2012
    • Prezi is one of those rare startups which actually has revenue. The company has been cash flow positive since 2010. The company’s business model is unusual. Prezi users pay for privacy. All Prezi presentations are by default public and only premium users can restrict access to them. Prezi currently has 7 million users, the majority of whom are in Europe and Asia, although the U.S. is still the top single country of origin. ...»
      VentureBeat Bron: 15/12/2013
    • Skype is so valuable because it has 600 million users who make calls for free over the internet. And only a small percentage of those pay to make calls to landlines. But that percentage is enough for a billion in revenue, and it would be impossible to make that revenue if it weren't for those hundreds of millions of free users who give the product its value. ...»
      Skype Quoted as a succesfull example by Business Insider Bron:
    • because LinkedIn is a professional social network, it has no problems selling subscriptions to recruiters and sales people who are particularly heavy users of the site.
      Linkedin Quoted as a succesfull example by Business Insider Bron:
    • Dropbox has a magic business, thanks to freemium. Its free option is smart, because that gets people to use it. And it has a referral program that gives users free space for inviting space, which gives it viral growth. It's obvious how it increases in value the more you use it: once you run out of free space and have all your documents in Dropbox, you're not going to move it all out. You're going to pay up. And finally it keeps it costs low by being all in the cloud, where costs are always going lower thanks to Moore's Law. In other words, it has a business model where almost by the laws of physics revenues are always going up and costs always going down. No wonder Y Combinator founder Paul Graham thinks it's one of the most valuable companies in the portfolio. ...»
      Dropbox Quoted as a succesfull example by Business Insider Bron:
  • What are we talking about?

    • Freemium is a business model by which a proprietary product or service (typically a digital offering such as software, media, games or web services) is provided free of charge, but money (premium) is charged for advanced features, functionality, or virtual goods.[1][2] The word "freemium" is a portmanteau neologism combining the two aspects of the business model: "free" and "premium". ...»
      wikipedia Bron:
    • If 20% of the users convert after, say, a month, then the service is not really freemium — it’s a free trial for a short period of time.
      Jason Lemkin VP of web services at Adobe Bron: 12/07/2011
    • Freemium means the vast majority of your users use your product for free and a minority  pay.
      Business Insider Bron:
    • Importantly, this means that freemium is NOT the same thing as "premium with a free sample." Plenty of software as a service (SaaS) companies have some sort of free option, but the goal is to have the majority of users pay. A restaurant that offers free appetizers is not a freemium business, and neither is 37signals. ...»
      Pascal-Emmanuel Gobry Senior Analyst at Business Insider Bron: 08/04/2012
    • Freemium works because the marginal cost of each additional user is low, so you need to keep your operating costs correspondingly low. Again, internet economics, though things like open source and the cloud, help, but that's not going to be true for everyone. ...»
      Business Insider Bron:
    • Freemium is really a construct of the digital age because there's almost no marginal cost to digital goods,
      Chris Anderson editor in chief Wired magazine Bron:
  • Con: deciding what to give away and what to charge, proves difficult

    • Start-ups are attracted to the freemium model because it is "deceptively simple"— lure users with free services until they're hooked, then charge for extras. The problem is, it's not always obvious what features should be free and which should be paid. What's more, offering too many features in the free version risks "cannibalizing your paid customers," while not offering enough might generate little interest all around. ...»
      Harvard Business School Vineet Kumar Bron: