Charles Hudson's Blog - Latest Comments in Thoughts on Free Powered Business Models and Why Time Beats Features

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

Bob Jain — Fri, 29 Apr 2011 01:29:55 -0000

Nice post! They're very influential and useful. Thank you very much and keep it up!

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

abhitam — Sun, 28 Feb 2010 03:05:17 -0000

I agree with Andrew. Freemium entirely depends on what the perceived value is. And whether to give a free trial or offer a free offering is not mutually exclusive. Take YouSendIt for example, we have a free offering that is restricted on what size of files you can send and some other features which provide certain basic value. Beyond that, if you need to use the product on a more regular basic (a.k.a. power user), you can try the Pro version for a limited time. If you like what you see, you can enroll in a subscription plan. If you don't, you always have a choice to move back to the Free version with a more limited feature set.
And, in my experience, I have seen certain segments gravitate towards a certain offering. Enterprises have specific needs around having multiple seats or more power features and thus gravitate more towards free trials. On the other hand, more single seat users or individual sole proprietors may move between free and the lower priced SKU.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

Free Games — Fri, 19 Feb 2010 06:08:42 -0000

Yes, like you have said before I think it’s good to figure out whether the business model that we have in mind works. Like right now I'm still figuring out which business models is the most suitable one for my product/

www.addicting-games.cc

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

BingoBiloba — Mon, 18 Jan 2010 14:12:48 -0000

HI there! I really liked your article,I enjoyed reading it and I guess many people think that these information you have posted here are very useful.keep up the good work.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

rafer — Thu, 31 Dec 2009 03:57:14 -0000

Once again, we hold different world views. In my world your #2, is the first premium step, is pretty obvious to figure out what should be taxed, though price can be very tricky. After the simple premium is well established (and the enterprise is likely at least CFBE), a _hopefully_though_not_necessarily_ variable superpremium should be introduced to the mix.

At some unpredictable point along this progression, sales of a proprietary ad unit -- and hopefully also a proprietary advertorial unit -- work well.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

chudson — Thu, 31 Dec 2009 00:56:31 -0000

Scott,

I read your full post and your comment. I agree - it's hard to paint all freemium businesses with the same brush. I think there are two different cases:

1. A product with mass-market appeal where you have enough reach / audience potential that a small, concentrated audience of buyers is enough to support the entire audience of non-payers without offering two different products. I would put the social gaming and free-to-play gaming spaces in this category. A small percentage of payers can carry the audience. There's one key thing to make this happen, though - there is no cap on what a "power payer" can spend. If you had a F2P game model where you capped what top spenders could spend, I'm not sure it would work.

2. The second model is one where all / most paying customers pay the same price (a subscription or an a-la-carte consumption path where most people pay the same regardless of utility or consumption. These businesses are different. In that case, figuring out how to convert free users to paid customers when they're consuming key functions is a much different calculus.

If you look at a lot of the big companies in freemium today, they fall into category #1. Allowing your whales to spend as much as they want to or can afford allows them to cover many more non-paying users. Under model #2, the balance between paying and non-paying customers is much more important as your paying users will deliver a fixed amount of revenue.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

rafer — Wed, 30 Dec 2009 15:05:28 -0000

edited down version of http://rafer.tumblr.com/pos...

I find it fascinating how differently we approach freemiums. I don't find it to be at all a problem to "properly segment users and features such that you provide enough value to both paid and free audiences." I think content people and commerce people see freemium opportunities in entirely different ways.

You see the free version as the bastardized, “degraded” version” of the real, “paid product.”

Instead, I want to support users for Love or Money. I see the premium version as a tax on the 2% to 5% of the user base that abuses the free service. Any freemium I work on is free first and premium after because I want volume. The broadest adoption net is one that offers value for participation and attention and values the free users beyond their likelihood of conversion.

It’s not just an attitudinal shift. I think we also design our services and organizations differently. Most importantly, the 80/20 focus on earned media versus advertising is reversed. Earned media isn’t free, and it requires just as much forethought — and a completely different set of testing — as a great CPA plan.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

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Re: Thoughts on Free Powered Business Models and Why Time Beats Features

chudson — Wed, 22 Apr 2009 22:35:37 -0000

Wow, thanks for the great comment!

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

Andrew Holt — Mon, 20 Apr 2009 14:55:20 -0000

I think the choice between free trial and free version (or both) depends entirely on the product and the target audience.

If a product has features that clearly have value associated with them, yet it's possible for users to get a taste for the product without those features, then offering a free version can be logical. For instance, WordPress allows anyone to cretae a blog for free, but charges when it comes time to map the blog to a domain or customize the CSS. Any serious blogger will want, and be willing to pay for, those features. There is a clear upgrade path for a target audience, and their pricing has a correct (in my opinion) cost/value ratio.

Free trials, on the other hand, can make a tremendous amount of sense if the target audience most likely has a budget for the product, but needs to be convinced either of the category (that they need *any* type of similar product) or your particular product. For enterprise software, it's almost a requirement that companies be allowed to try out applications as a part of the sales process. If the product offers real value, companies will be able to perceive the value within the time allotted and be more than happy to pay if the price is right. It's trickier when companies aren't yet convinced of the category value, but a good sales person can usually work through this during the free trial.

Now, the trickiest situations usually arise when the target audience varies, and the product's total value won't necessarily present itself to the adopting user. BaseCamp falls within this category. Users can range from independent contractors and small startups to enterprise customers with big budgets, all of whom will need some time to use the product with their colleagues. BaseCamp's model works very well for them, since the upgrade to paid plans will only be required in two scenarios: 1) a consultant/contractor grows to more than 15 clients, by which point the product has presented a lot of value and a budget has been made available, or 2) the customers already has a large number of projects, and project management software will present immediate value once the group gets on board. So those that started free will upgrade when the time is right, and those that already need paid plans get the chance to try them for free, with no commitment. Those that have no reason to pay are not asked to do so.

The price/value structure is definitely the trickiest part of planning a business, but once you figure out the "will pay for" features, choosing between a free trial, free version, or both, should be easy.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

chudson — Fri, 16 Jan 2009 20:17:33 -0000

Hi Scott,

I tend to agree with you - unless the ads are really obtrusive (which is an issue in and of itself), I've never been terribly convinced that removing ads as the primary value add can move the needle.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

scottfasser — Fri, 16 Jan 2009 19:27:50 -0000

Hi Charles, excellent post. Question about using advertising as a lever for free vs premium. We're contemplating a product offering in which free includes ads and premium has no ads as the sole differentiator. I don't believe that is enough of a distinction, but my colleagues disagree. I realize it depends on how disruptive the ads are and what types of ads, etc. but I think a service level distinction would be more compelling.

Your thoughts?

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

chudson — Fri, 16 Jan 2009 15:53:06 -0000

Hi Ben,

Thanks for the comments and I appreciate you contributing to the discussion. I agree that this issue is pretty much moot when you have a high touch model. In those cases, it might make sense to have a free trial period to let the enterprise try out the product - many enterprise software companies do those. But a perpetually free version? Unless it's an open source product, that's a tough way to go with a direct sales model.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

chudson — Fri, 16 Jan 2009 15:51:21 -0000

Hi Adrien,

I too use Highrise and I like it. I too started off with the free version, but I knew that I would have to upgrade pretty quickly. I think the 37Signals guys are probably some of the smartest when it comes to versioning.

At the end of the day, though, I would have been just as happy starting with 1 month free of Highrise Solo edition as I was starting with the perpetually free version - it became clear to me fairly quickly that the product was worth the cost.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

Ben Yoskovitz — Fri, 16 Jan 2009 15:10:59 -0000

Charles - great post and interesting comments that follow. I think it's also important to understand a company's sales model and strategy in conjunction with the business model.

If you find that sales are generated more successfully through a higher touch model (i.e. demos, etc.) then offering anything for free is a challenge, because you have to exert more energy to make a sale but the sale brings in $0. I think of http://www.hubspot.com as a good example. No free trials. No free version. And the sales process involves a demo. That's a high touch model where it would be silly to offer the product for free.

So beyond just the business model and whether some form of freemium works, companies need to evaluate how they're going to market and sell the product as well, and understand how their market wants to be sold. That can impact the business / revenue model.

(Incidentally, I found your site through http://www.startupcfo.ca where you left a comment.)

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

dremoran — Fri, 16 Jan 2009 12:17:01 -0000

I think LinkedIn makes the bulk of its money from recruiters who want access to the userbase. The company poses a huge threat to executive search companies.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

Alex — Thu, 15 Jan 2009 15:00:23 -0000

Dear Charles,

The shareware model that you are describing and tend to favor proved to be THE MOST efficient for the software mass-distribution over the past decade. In my opinion it happened because it feels equally fair to the people in cash-based cultures and credit-based cultures.

By the way, we created a group on LinkedIn lately fully devoted to Game Payments and distribution of digital and virtual goods. I sent you an inmail with an invitation there but probably you missed it. The group is here: http://www.linkedin.com/e/g... That's exactly the type of topics we are discussing there, I thought you might be interested to join too.

Regards

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

Aswan — Wed, 14 Jan 2009 23:02:35 -0000

Agreed.

I was always a little suspicious of LinkedIn's revenue though; I was under the impression that only a small fraction of users were paying and that (among other things) was the reason for the CEO swap. I certainly could be wrong. I am curious what their ad revenue looks like though.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

chudson — Wed, 14 Jan 2009 21:04:37 -0000

Aswan,

If you're in beta, I think it's probably a good idea to spend more time working on features while you hash out the business model. But you still need to think about life post-beta.

As for LinkedIn, I think freemium is working well for them (I think it has more to do with audience segmentation - they charge the users who see value in paying for broad access and offer a good free version of the product to their general users. This makes sense because having the free users actually makes the service more valuable for those who are paying to access the network). They're doing 10s of millions of dollars in revenue, so they must be doing something right!

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

Aswan — Wed, 14 Jan 2009 17:55:34 -0000

Very interesting debate. It's a tough call as with the current investment climate, a lot of companies are being pushed to monetize ASAP. The Trial-to-Pay approach presents a problem to services still in BETA that are trying to beef up their analytics and collect enough usage data and feedback to make informed product improvements. Further, there's the issue of being able to demonstrate enough value in the trial term to compel users to convert. For sites with a more long-term value prop (say LinkedIn), this wouldn't fly - hence their freemium model. But then again, that doesn't seem to be going too well for them either. Eek.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

Build a Business — Wed, 14 Jan 2009 15:27:18 -0000

Good read. Very well put together. Good Luck!

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

DHS — Wed, 14 Jan 2009 08:17:41 -0000

Interesting post!

Chris Anderson was on BBC Radio 4 recently discussing business models with a free aspect:
http://www.bbc.co.uk/radio4...

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

chudson — Tue, 13 Jan 2009 14:35:46 -0000

It looks like we'll have to agree to disagree, then. I don't think all free trials are lame - they give you a good sense for what the product is, how it works, and whether or not it's worth paying for. My real concern, though, is that I've seen relatively few companies who are skilled at converting free users to paid users. If your goal is to build a big company with 90% free 10% paid pyramid as its structure, then there's a case for carrying free users. However, if you want to build a business with an opposite pyramid (a large share of paid users and a smaller tail of free users), I continue to have some questions as to the value of having a perpetually free offering as part of your plan.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

pwb — Tue, 13 Jan 2009 14:21:41 -0000

Emphatic disagreement. Free trials are completely lame. When trying out a product, no one needs the full version. It is actually very easy to delineate free/paid feature sets. It's silly to think the free version is a degraded version of the paid version. If you can get traction with a free service, the features that people will pay for will become obvious. The moment you ask someone to take out their credit card, 99% of the people are gone.

Re: Thoughts on Free Powered Business Models and Why Time Beats Features

christof.lapd — Tue, 13 Jan 2009 10:27:48 -0000

I used a free flickr account for quite a while till I got a paid account. When I had a full account for 30 days and had to make the descission after this time I wouldn't have got a pro account. So I think #1 this is the better option (For my personal use)