Freemium Model | Hacker News Reader

Freemium Model

spencerfry.com

53 pointsEGF13 comments

An important point to mention in segmenting your features is that the main thing to consider is the value a feature delivers to your users. If if delivers considerable value, consider making it premium.

Contrast this to "hard vs easy" thinking. Sometimes you may feel like you should charge only for things that were hard to develop. Discard this feeling right away. Users don't care how hard you worked, only what value it delivers.

One successful example of this he doesn't mention is games. Several large-ish MMO's basically operate on this principle (Adventure Quest, Dungeon Runners and Runes of Magic to name a few). It's basically the exact same idea he's talking about, though games do have a very different incentive model than a business or professional service.

Edit: Turns out Dungeon Runners is no more. Sad, my wife and I really liked that game.

I would recommend Chris Anderson's "Free: How Today's Smartest Businesses Profit by Giving Something for Nothing" book - http://www.amazon.com/Free-Smartest-Businesses-Something-Not... to anyone interested in this topic.

The main problem I have with the Freemium model is the same problem I have with the advertising model, both require a large userbase before any substantial revenue can be made.

I wonder if anyone has done a study on the Freemium model vs the Free Trial model and see which one generated more revenue.

Both the Freemium model and the Free Trial model require a lot of people at the top of the funnel. Speaking from what I've heard from friends (Squarespace, Harvest, etc.) who use the Free Trial is that they require the same amount of users at the top of the funnel as the Freemium model. The main difference is that they only have to support 1 version of their web app instead of a segmented free and paid version. This means you don't have to think about segmenting features, supporting free users, etc.

Interesting point about needing the same number of people for the funnel. We're actually in the middle of transitioning one of our sites from Freemium to Free Trial because we feel like we're leaving too much on the table. As a small company, it's definitely a bonus to bring in the same amount of revenue and have lower costs due to less overall customers.

I looked at your profile, are you refering to theweddinglens.com?

Yeah, we actually just revealed the new plans on Friday.

Exactly, the bigger difference is that free users will always be using your resources (servers, bandwidth, support) while trial people after 30 days is out.

You just have to balance the cost of those users with what they bring to the table: network benefits and viral benefits.

One reason a freemium model might be a good choice is if your free users might convert somewhere down the line. For example, if you use Dropbox you use more storage, and thereby move toward the paid option as you become more engaged. Free trial services run the risk of rejecting users who might become real customers given enough time to become dependent on your service.

Thanks for the article! Any thoughts on breaking a premium service into smaller (bite-sized) offerings?

See my ASK HN: http://news.ycombinator.com/item?id=1436734

Spencer delivers as always!

Since we do something really different, I thought I'd share:

Almost uniquely among services that offer freemium, ours is extremely crippled. We offer only one project and no invoicing.

Most people who sign up for the free plan (instead of the 30-day paid trial) are just window-shoppers -- only 17%-20% on a monthly basis actually ever enter more than 5 entries. And entering 5 entries takes less than 30 seconds, so that's a ridiculously low bar. (We count these as "active.")

But of those, 25-35% upgrade to a paid plan.

That leaves us with a 3-5% free-to-paid rate out of the total pool of free accounts, which is normal. But what really makes me excited about it is the % of active users who upgrade.

I chalk this up to the extremely limited nature of the free account -- it makes a good case for the software, it's a good first taste, but if you want to really use it, you have to pay.

People are afraid of this strategy, but it works very well for us.

So now, other than broadening the mouth of our funnel as Spencer put it, my main focus is on increasing the "consumption" of new users (getting them to really give it a good try-out). Based on that active-only conversion rate, to use it is to love it. So if I can only get more people to actually use it...

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