Lessons Learned: Three freemium strategies

There is also the option on segmenting your market into two groups:

1) Customers with whom you trade value for money.

2) Customers with whom you trade value for value.

There are a lot of businesses which end up doing this by default (by doing a free trial model aimed at separating #1 from non-converting users) but I think you get much better ROI on the effort if you explicitly take into account those #2 customers in your design stages.

For example, in the traditional shareware model, the two major events in the sales cycle are download conversions and purchase conversions. Downloaders convert to purchases fairly infrequently -- the number most people give is 1% but what they really mean is "we don't know a number but it is low".

The traditional model largely sees the non-converters as a) not differentiated from purchasers except by their decision not to purchase and b) a cost-center: they tie you up with support inquiries and cost bandwidth, but you don't make anything off of them.

But what if you knew, a-priori, something about your market such that you could predict who the purchasers would be? The traditional shareware model might say "Great, avoid exposing yourself to the rest and you'll save time and money". But rather than excluding them, you could instead use them -- they've got blogs, they've got contacts in your group of core purchasers, etc. Instead of thinking of them as a cost, you can think of them as customers who are bartering things of value instead of money for your software/service/etc.

One example of a business which does this pretty well is github: they use free-for-OSS pricing to get them exposed to people who will request their boss to purchase paid-for-commercial services.

You can use the same basic concept with free trials, free plans, free content, etc. Its the basic core insight that I use to organize my content publication and limited free trial strategies for my downloadable software. Still working on my blog article about that that I mentioned here earlier. The ROI is wonderful if you get it right (remember, the traditional shareware model is assumed to leak 98%+ of prospects as muda [1], so capturing any fraction of that is powerful stuff).

[1] Muda is a Japanese word you'll hear a lot in certain management circles because Toyota is institutionally obsessed with eliminating it. The closest literal translation is "waste", but it relates to all sorts of process inefficiency. I find it is a helpful frame of mind to have in the toolbox when optimizing for conversions -- it sometimes is worthwhile to say not "Why did Bob buy this?" but "What prevented Suzy from buying this?"

I wouldn't call 'Free trial' the 'original freemium model' Surely, its the original 'try-before-you-buy' model.

So we're left with only two options:

1) Active free users - adding value by doing something, like creating content

2) Passive free users - adding value by just using the service, like attracting others on a dating site

Users that neither do something useful nor attracting others should be forced out (?) or forced into the paying group (maybe by offering a fix length period).

This will be another way to look at 'try-before-you-forced-out' model, where one can prove her usefulness to the service