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Does the freemium model work?

September 15th, 2010

Should you offer a free version of your software?

Two different perspectives on using free services to attract users:


Usually, the “free” offering never times out and is usually limited with respect to the paid version.

The shareware trial model most of use generally times out, most commonly in 30 days. The trial itself is often full-featured, but not always.

The experience of ASP members is to emphasize sales over downloads. An immediate purchase with a strong money back guarantee is instead of the user thoroughly evaluating before purchase.

A free offering will satisfy many people and they will never upgrade. Many (it would appear disproportionally many) will want free technical support and it is a burden to either supply it or refuse. Rather than offer a free version, a paid, low-cost version will make customers out of those who would otherwise use a free version.

3 things appear to support using a freemium model:

  • horizontal usage with scale and
  • no prior demand
  • web service

By scale, I mean that the app should be broadly applicable to a wide class of user. If you get 1000 free users, perhaps 1% of them will upgrade, giving maybe 10 paid users. This is rather low return on your development efforts. However, with 100,000 free users, that same 1% is 1000 paid. Thus, you need scale to get a good return. If you have targeted product aimed at a narrow niche, you are better off getting sales rather than free users.

No prior demand supports freemium almost by negation. If there is prior demand, people will search for solutions and your marketing is well served by making sure they find you. However, if people don’t even know they have a problem which your software solves, they will not search for you at all and search marketing is ineffective.

People expect web services to be free. It is hard to find examples of successful web services which do not offer free versions. Even Amazon offers a huge amount of purchase content allowing for comparison, user evaluation, search, recommendations, and other great resources. All that content is free. There no login or requirement to pay.

In summary: prefer sales to downloads and don’t undercut your efforts by offering a free version … with some exceptions.

Articles, Uncategorized

  1. September 20th, 2010 at 11:21 | #1

    hi Dennis,
    I totally agree with you. From my point of view it´s always better to offer a time restricted demo version – with the advantage of being free -to get the people used in working with it, and next to buy it because they´ve already applied it in their daily working. Next best is a money-back-guarantee because they first have to take the hurtle of buying without knowing what they really get. I always prefer the demo and be happy to buy it, if it suits my needs.
    Greating from Frankfurt/Germany

  2. November 6th, 2010 at 19:46 | #2

    I think with Freemium services it should be viewed as launching a second product line, with necessarily a danger of cannibalizing sales of the other product line. Most Freemium services work best when the two product lines don’t compete with each other (like offering paid a-la-carte addons), or when the Free service helps the company independent of the Premium service (like with Pandora, where ad sales give revenue even without conversions). Ultimately, I think for a consumer, upgrading is a matter of cost/benefit, and if your Free product is really good, then the relative benefits of the extra pay might seem less.

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