How long can the Startups hold to the mantra of Free!
Right from the advent of commercial use of the Internet, everything has been expected to be free both by the consumers and the producers. Be it content or services everything has always been free, or at least most of them.Giving away a product, service has always been a great marketing concept. In the bullish Web Startup space the idea has always been to get the eyeballs first and to think of monetizing them later. Google has managed to do it successfully, Facebook has always been on the same line though the sun ain’t shinning yet on them. Twitter’s monetization has always been a point of discussion. But is it really worth to give your stuff for free?
Then there is idea of providing your services for free and charging a premium for extra features etc, know as the freemium model. There are a number of services on web proving there services on the freemium business model, from Xobni to Gmail every other service has a premium feature list attached to it which can be used at a premium. Even content/blogs have been experimenting with this model, see Gigaom with Gigaom Pro, or the paid reports at Techcrunch.
Why is web so obsessed with freemium?
It all begin when web exploded with exponential numbers during late 90's every other developer
had a great product the only way to attract mass audiences was to give it for free, then came the bust. after that the idea still lingered only thing that changed was that the companies/venture capitalists were cautious about revenues and commercial viability of the product so then came the premium part making the freemium model as we see today. Even the 30 day trial softwares exist on this ideology that user will get hooked and proceed to buy the product.
It all begin when web exploded with exponential numbers during late 90's every other developer
had a great product the only way to attract mass audiences was to give it for free, then came the bust. after that the idea still lingered only thing that changed was that the companies/venture capitalists were cautious about revenues and commercial viability of the product so then came the premium part making the freemium model as we see today. Even the 30 day trial softwares exist on this ideology that user will get hooked and proceed to buy the product. Furthermore unlike any other industry the operational costs(bandwidth, hardware) gets cheaper each days, which fuels the idea of free in freemium.
The Dilemma
What should be charged?
When should I charge
Whom should I charge?
There always is a debate among the product developers that what features should they charge for, if its too less the potential customers might not see the full value, if allot is given for free then it might become a freeloaders heaven. Some statistics show that only 3-5% of the free users opt for premium versions later. And the percentage of the users who jump from free to premium in minority of the total users using the premium versions. Thus it is highly unlikely that by having a free version of a service the company get any premium users in future. 37signals with their flagship product Basecamp is one of best examples of a company with successful adoption of the freemium model. Giving the idea to the user that the service being provided is a free version and the premium one might be rolled out later is a better approach than, first getting everybody on the board and then thinking of rolling out a premium version so as to supplement the adverting revenues or keeping the company afloat. This model is destined to fail.
What should be charged?
When should I charge
Whom should I charge?
There always is a debate among the product developers that what features should they charge for, if its too less the potential customers might not see the full value, if allot is given for free then it might become a freeloaders heaven. Some statistics show that only 3-5% of the free users opt for premium versions later. And the percentage of the users who jump from free to premium in minority of the total users using the premium versions. Thus it is highly unlikely that by having a free version of a service the company get any premium users in future. 37signals with their flagship product Basecamp is one of best examples of a company with successful adoption of the freemium model. Giving the idea to the user that the service being provided is a free version and the premium one might be rolled out later is a better approach than, first getting everybody on the board and then thinking of rolling out a premium version so as to supplement the adverting revenues or keeping the company afloat. This model is destined to fail.
Then there is dilemma regarding what should be charged for the premium service, its hard to sell a product at 250 $/ month if a free version exists. or the services can be priced dirt cheap so that the conversion from free to premium user increases. But there are two things that hinder this
1)The user base is not geographically locked in most of the cases of web application, a free service with say 10 million monthly users if starts to charge 50cents for a months usage to American users will opt for it, but the users in countries like India might not be very happy about it.
1)The user base is not geographically locked in most of the cases of web application, a free service with say 10 million monthly users if starts to charge 50cents for a months usage to American users will opt for it, but the users in countries like India might not be very happy about it.
2)No one wants to risk once established user base and go for 100% premium model, since the entry as well as operational costs are so low in Web business if a hugely popular service starts to charge every user, even though it being cheap, other will quickly jump to provide a free alternate.
Recomended Reading: Some Serious Statistics on the Freemium Model
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Social Infotainment is authored by Supreet Sharma.It covers technology startups in web, mobile and other high growth domains. Lookout for interesting and well researched posts on business models, venture capital funding, marketing and other similar stuff.