Ask HN: Free-to-Premium business models. Any working examples? | Hacker News Reader

Ask HN: Free-to-Premium business models. Any working examples?

3 pointsnetcan11 comments

Just like 'ad supported,' I get the feeling that a 'premium accounts supporting free accounts' model is thrown around too freely. Something that can be thrown in later in the game, after you're popular, to generate revenue. How many examples do we have of this model working out? I'm not really referring to the high price-per-unit premium services (customised/B2B), I think they're an independent category. I am also not referring to services where the 'free' version is essentially a sample. I think the free version would need to be useful in itself to qualify for this category. So I'd naturally expect the majority of users to be using the free version.

I think this is an natural in context example: http://news.ycombinator.com/item?id=302142

My immediate thought is that unless the service is immune to competition, a service with virtually 0 marginal cost per customer, is a bad fit. From that I'd further speculate that using premium-only features & ad removal to differentiate free from basic is not the best route to take. A premium service that costs the service provider something (eg storage) is probably preferable.

One to watch is naturally Google Apps Premium Edition. Interestingly Google Apps uses all three selling points - more storage, ad removal & additional features to upsell. Considering the resources that have gone into these apps over the years & their level of success in the free end of the market, it's a high bar before you could plausibly take this as a case study in the success of this particular business model. Maybe 1/2 - 1 million paid accounts ($25m - $50m per year) could be called a borderline case. http://www.google.com/a/help/intl/en/admins/editions.html

So. If anyone has interesting examples please share. Info on how they're doing, as well as stuff like what the free/premium ratio is like would go down well.

37Signals stuff, Wufoo, BlinkSale, Flickr, Freshbooks, RescueTime, Harvest, etc.

If you want some good data, you'll really want to read this: http://particletree.com/features/web-app-autopsy/

Thanks for the link.

Wufoo & BlinkSale are interesting cases. I was surprised to see their conversion rates so transparently out there. But services like Freshbooks, RegOnline, RescueTime & 37 signals stuff are not really what I'd call part of the 'Freemium' business model. The free version is either limited in time or functionality to the point where you can't be a 'real' user (like you can with Gmail or Dropbox) without being a paid user.

Even BlinkSale is kind of borderline case. Serious users would 90% of the time need a paid account. Wufoo is also near the 'sample' end of the spectrum though it looks highly usable with a free account.

Nothing wrong with that of course, non one says you can't sell services.

Also they're all in the business tools arena. That's definitely an area where paid tools are likely to succeed. But it's an area that (as you can see from those examples) it's pretty straightforward to sell software subscriptions. But they really don't get us anywhere near a facebook premium.

Flickr is potentially a good example. It's consumer oriented & I'd guess the great majority of users are always going to be free users. But is it earning it's salt this way yet? Or is it still in the wait & see category with Google Apps Premium?

BTW I downloaded dropbox today & I can see myself paying for the service, but also see myself using the free version.

Where you put the "pay wall" is a big decision. I think a lot of companies have learned that if you offer a largely functional product, people don't jump the penny gap ( http://redeye.firstround.com/2007/03/the_first_penny.html ) for a few slick premium touches.

FWIW, we have tens of thousands of free users at RescueTime who seem pretty enthusiastic. We've got a mess of paying customers, too-- but I've often pondered the idea of crippling the free version a bit more.

If you're looking at selling stuff to consumers, rather than businesses... I think you're in a scary world (unless you're an iphone app and you can offer the 1 click buy). No matter what you sell, there are always a dozen idiots who will give it away and throw adsense on there-- and consumers are well-trained at this point to find the free alternative.

I am very fond of the freemium model, but recently I've been considering that there must be better ways to convert users to profit beyond scaling the number of users or adding additional functionality.

Have you given much thought to variations on fairly standard business models?

We've applied for YC this round, and one of the things we're trying to achieve is to successfully adapt a freemium model for a product that has been traditionally something that customers would pay up front for. The market is already one that is very profitable and our philosophy is that eventually products in our market will be free, so we want to be the ones who give it away first. We want to do this not only to experience the benefits that come with the freemium model (adoption + potential viral growth) but to also help insulate ourselves from competitors doing it to us.

Without going into too much detail, after some recent discussion (or perhaps it is just paranoia speaking, this occurred about a week ago) we feel that while a freemium model is still the best framework for our particular concept, it comes with a couple of drawbacks¹ that we hadn't originally conceived, so we have had to think a little outside the box.

Right now, we're considering if a hybrid trial/freemium² model might provide us with what we are looking for. Essentially we envision this to be where a user would receive a fully featured product at the start of their product lifecycle, which after awhile degrades into a functionally sound but less featured and free version. The absolute last thing we would want to do is annoy a user by handicapping their product into something unusable.

We think this might provide a user more of an incentive to want to upgrade to a paid-for product beyond the simple fact that they have access to more features/bandwidth/data, while still maintaining our core freemium philosophy.

Also given the nature of our product, we do have room to add in some further functionality in which the addition of a surcharge on further transactions could be warranted, but we would have to further explore the specifics, so perhaps that is another option available to you?

Notes:

1) If PG is reading this and is seriously considering our application and needs to know more about point 1 above, please feel free to email me and I can explain

2) I can't name anyone offhand who is using a trial/freemium hybrid but would love to know if anyone can point me to someone who is using this (or if we're just over engineering the problem).

When I posted this, I was looking for working examples of the freemium business model on the Google Apps/Flickr end of the spectrum - mostly about the free users. (They're not examples because I don't think they're pulling sufficient revenues yet. Correct me if I'm wrong)

From what I've gathered, there are more examples at the other end of the spectrum closer to the 'free sample' - free users get a good, usable trial, but premium users are what it's about. I'd call that more of a sales method then a business model.

Anyway, from that I'd say that a hybrid trial/freemium² is a reasonable idea. I would put more chips on the product if it's for businesses.

Chris Anderson's article on Free in Wired is six months old but probably a good reference if you haven't seen it:

http://www.wired.com/techbiz/it/magazine/16-03/ff_free?curre...

I guess his book isn't out yet but it looks like he's blogging about free @ the long tail:

http://www.longtail.com/the_long_tail/

Actually, I had read that article but forgot about it. It's probably where I got my description of the model. It's a good article. Gives you a feel for the context of all this. I totally agree that free services have gotten a major upgrade as part of the economy & that it makes sense. But on the incentives to service providers, they just list a few: advertising, cross subsidy & freemium.

Advertising is an old one. We know that one from the TV/Radio/Magazine world. We also know it's not capable of funding every type of popular free web thing. (Great on Search, less great on Facebook).

Cross subsidies - Also pretty straightforward. Real estate site provides tools, Google gets people to like them etc. etc.

Freemium, on the other is not as well trodden. Especially if your strict about excluding free samples from the category.

Isn't Flickr the perfect example? I know a lot of people that pay for it, and a lot of people that don't. Some blogging platforms also use the model successfully.

Smugmug is a pioneer in this.

Can you elaborate? I see Start your 14 day free trial. Is there a usable free version?

Hah, right. I forgot... they are just straight premium. My mistake. ;-)

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