Where Goes Consumer Freemium Business Models?
A reporter asked me some very good blunt questions about Pingpad’s business model.
To ask a bold question — why do you think there’s a market in consumer freemium any more? Evernote, Dropbox … it’s a trail of tears, man.
Good question. I don’t think you can fault the business model for Evernote’s problems, it’s more about managing change in products and markets.
Two funny things about making software over time. The software you start with is largely the software you end with. It’s very hard to reinvent once entrenched in code and usage patterns. To disrupt yourself. It’s hard to to the big rewrite (I’m still in awe about what WP pulled off). Specifically, it’s hard to start with a personal productivity app and then support collaboration. Or develop a line of enterprise revenue.
Second, software gets crufty. The rule of thumb is that if a product is 10 years old it will be so bloated that even if it has all the right powerful features it can be disrupted by something simple and easy to use.
In my view consumer freemium is the best business model for consumer software because it doesn’t have scale limitations.
If you charged up front for an app, you reduce the potential scale of people that will try it, and you have to spend more marketing dollars for market and revenue share.
If you run ads, you are inherently limited to the inventory you create, are in a race to the bottom on a per-basis, and inherently running someone else’s business model unless you create your own native ad format.
Consumer freemium, especially for a viral app like Pingpad, let’s you invest in the product to benefit users instead of marketing to benefit vendors. It encourages you to go for scale, creating network effects that are natural barriers to entry vs. the competition. And If you achieve scale generates revenue that can compound as the network effects do, and you make the product more valuable.
We want users that love Pingpad and want to share it liberally and/or help contribute to making it better. So, Pingpad’s consumer freemium business model has two parts. One is a storage limit that only extreme power users will run into. Pretty standard. Second, anyone in a Pingpad group can add or remove people. If you have trust in your group, no problem, you can use all the features for free. But if someone wants to be a group owner and have control (see the lock on the left), they will have to pay for being an inhibitor of viral growth.
I will say that SaaS enterprise revenue is an attractive alternative, and one that Pingpad may layer on later. That’s another business model I’ve run. And they key would be managing the balance between the lines of revenue while continuing to deliver a superior integrated user experience.
I think if you’re creating collaborative productivity software, you’re in the enterprise software business, period. And that’s fine! But I think it’s a realization you want to get to as early as possible, lest your product become a Frankenstein’s monster like Evernote or Dropbox.
Every revolutionary IT innovation comes from consumer and spreads into the enterprise from the bottom-up. PCs, Spreadsheets, LANs, Email, IM, social….
The classical reason there is enterprise vs. consumer is the former demands customization and the latter demands a focused engaging experience at scale. It is by going enterprise you end up a Frankenstein, and it’s how you manage that balance. If you go to early you will be pulled apart by differing enterprise requirements before realizing your core and whole product concept. If you go, you have to choose to give up that core and your consumer users. Or continue to serve it deeply in product and culture.
Some examples of companies that have managed consumer freemium and enterprise SaaS hybridization at scale include LinkedIn and Google (Docs). LinkedIn has a cultural principle called Members First which helps guide business and product decisions to protect and serve that core.
We may very well also go into the enterprise, and option I reserve and a play I know how to run. But first we’ll create something that can always provide some value for everyone for free, which lowers marketing cost for us. And we will get there with a better integrated UX and users on our side.
“More than 400 million people use the company’s service — a place to keep documents online, so they can easily be shared and synchronized among different people and different computers — and the service is adding 10 million users a month. Dropbox also has 150,000 business customers, who pay annual fees of about $150 for each employee, and those ranks are growing by about 25,000 businesses a quarter.
Insiders declined to specify Dropbox’s revenue and growth rate, other than to say there had been increases since its last funding round, when the company’s annual revenue was reported to be $400 million.”
(Cross-posted @ Medium | Ross Mayfield)