Sure it is… despite the gnashing of teeth that regularly flares up when the discussion of freemium is engaged in.
Freemium is not magical pixel dust, it is a way to deliver a multi-channel business model that intersects customer segments regardless of size, complexity, and revenue opportunity. It does require you to rethink your business from top to bottom, beginning with how you meter your pricing model and ending with how you use your website.
The metering discussion is critical and you have a range of implements you can take advantage of, including metering by number of users, time, type of organization, features, and specific capacity dimensions. If you are offering free to high priced enterprise license agreements the metering by feature model creates landmines that you will have to deal with, most notably the bias that will emerge in your development process which results in packaging of high value features to defend your high price points which then results in the most interesting stuff you build being available to the smallest audience in your customer base.
Pricing for growth and pricing for margin are on different ends of the spectrum and if metering features supports margin then capacity must be in support of growth, right? Wrong, pricing on pure capacity creates a different kind of problem that you have to consider, which is leaving a lot of money on the table as a result of product realities that frustrate consumption. An example is a complex signup process that frustrates casual users or a deficient getting started process that creates barriers in the initial trial process. When pricing by capacity everything your development organization does must be viewed through the lens of creating consumption, even at the expense of value.
By the way, speaking of the initial trial process… will you have one? The trial process is valuable only if you are using it to facilitate a purchase decision otherwise you are better off having a “buy now” process or at a minimum have it as an option. If someone coming into a trial product experience isn’t using it in the first 30 minutes then it’s unlikely you will get them to use it over 30 days (which by the way is optimal if for no other reason than managing your internal reporting… all trials created in one month convert in the next).
Will the free product experience initiate in the trial process or as an explicit free product signup? If I were you I would go with a single trial product that converts into a paid or free product at the end of the trial, which works only if you don’t front load the trial process with payment information. The conversion rate for trial-to-paid will be low, probably 3-6%, at which point the debate shifts to getting people into the website and as efficiently as possible into a trial experience… it’s a pure numbers game at this point, feed the funnel with x number of site visitors to get to y number of trials to z number of paid customers.
The website is where the conflict between enterprise and monthly subscription customer segments will be realized. Enterprise marketing – the traditional kind – is entirely focused on content and getting contact information from a site visitor in order to have a sales resource follow up with them. This doesn’t work well for online freemium goto market strategies because it frustrates the goal of moving site visitors from the top of the funnel (your homepage) into a trial experience.
The conflict gets exacerbated when you realize that enterprise leads are opting into the low friction trial experience and once in that buying path the effort to shift them into the traditional enterprise path is cumbersome, mostly because of the pricing disparity. However, this fails to acknowledge that you, as a business, should not care how prospects come into your funnel and if your pricing model is appropriate for your business then prospects will naturally coagulate around the pricing plan most appropriate for them… pricing for growth.
The other dimension of the perceived channel conflict that you should consider is that it is unreasonable to think that the majority of your customers will start in free and end up in enterprise. Customers who select into one buying path are doing so because of what they want rather than what you are getting them to do… a customer who comes in via self-service trial, automatic conversion and monthly subscription renewal, and never talks with someone on your team is doing exactly what they want…. and that is not talking to you. Get over it, you can still serve them well and they will be happy, as evidenced by the fact that they renew each month.
You can help customers find the best fit for them among your product portfolio but doing so successfully at scale is as much dependent on in application marketing as it is good content on your website. Once you acquire a customer spend money designing and delivering a compelling product experience that facilitates upgrades and add-ons, rather than extensive email marketing campaigns and call centers.
Some enterprise products are not appropriate for freemium models but almost exclusively the result of high COGS and/or specific industry vertical issues (e.g. compliance). These are edge cases but you do need to be aware of them.
In summary, freemium works for enterprise software if you:
- Carefully consider all of the consequences of various packaging and metering models.
- Build your product to maximize the Hour-1 customer experience and then in support of the metering model you select.
- Build your website for throughput and efficiency in support of customer acquisition through the trial experience.
- The Only Kind of Product That Can Pull Off Freemium (cloudave.com)
- Freemium is alive and kicking (davidgcohen.com)
- How the ‘freemium model’ can make – or break – your tech business (business.financialpost.com)
- Freemium has run its course (gigaom.com)
(Cross-posted @ Venture Chronicles)