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Jun 072012
 

People love “free”.

They love the word, they love the thought.  And the internet has only intensified the quest for “free”.  From free content to shareware to open source, customers are getting accustomed to getting something for nothing, and this makes it harder for products with conventional pricing models to succeed, and nowhere is this more true than for software,  where finding a profitable price that consumers will pay has always been a challenge.   To resolve this dilemma, many software vendors have turned to the “Freemium” model, where a basic version is offered for free,  and users can upgrade for a price.

Over at Mashable,    tells us  Why The Freemium Model Doesnt Work, then he proceeds to give us the conditions under which the Freemium model works.   (Huh?  did someone else write the headline?)

According to Leonov, there are three conditions where Fremium pricing is the right fit.

1)When the product provides so much value and is designed in such a way that a  “significant portion of the users will inevitably cross the paywall. The longer you use the product, the more value you derive from it, and the closer you are to hitting the free upload limit. ”  He gives Evernote as an example of a software that used this method well

2) A product with a “Network Lift”  – such as Dropbox, which is really only useful if you convince other people to use it as well,

3) A truly useful application where the free version puts “Spotify” type ads in truly annoying places.  (Leonov mentions the Sparrow mail app as an example)

If you have a product that falls into one of these three categories, awesome, freemium could work for you.

Otherwise

There’s a lot to be said for creating something of value and charging money for it. If you’re not charging for your product, then your users are the product. This forces you to focus on two unrelated efforts: growing your user base and figuring out how to monetize it. There are many benefits to having free users and focusing on hyper growth. But the decision to go the freemium route should be based on math specific to your business — not a pricing philosophy. Because the reality is, the freemium model doesn’t work for the majority of companies who try it.

 

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