More than five years ago, Chris Anderson wrote in a seminal Wired article that, “The Web has become the land of the free.” Since this declaration, there have been some extraordinary freemium success stories including Dropbox, Spotify, CandyCrush, and Evernote.
But detractors have also emerged, such as Dmitri Leonov, who feel that for many companies, the freemium model doesn’t make sense. Leonov, a VP at Sanebox, wrote in an op-ed for Mashable that “by charging nothing for your service you’re actually anchoring that value in your customer’s mind, making it harder to raise the price later.”
So why would users ever opt for a paid product, instead of sticking with the free option? Before your freemium launch, take a look at how limiting features, space, and the number of users can provide a clear incentive to purchase the premium version.
Features and Perks
Here, the free version of the product is completely functional — think LinkedIn, Hulu, join.me, or Feedly–but upgrading provides access to more features. In this model, one of the big challenges is determining which core features need to be included in the free model, and which features to reserve for premium users. Informing users of the benefits of an upgrade, without being a nag, can be another challenge. This type of freemium is particularly successful when it comes to games: Once users are Farmville devotees, the idea of spending money to get perks necessary to succeed at higher levels will seem worth it (whereas paying for an unknown game, which may or may not grab you, might not seem attractive).
Some classic examples of this model are Dropbox, Flickr, or even Gmail. This type of freemium product encourages users to upgrade by having a set capacity of free space — once users hit the limit, the benefits of paying for additional space are clear. Offering a lot of space, and making it easy to use the free product, only makes upgrading a more attractive offer; by the time users max out on the free storage, they’re likely dependent on the service.
This works well for products, apps, and services that are used by teams. Often, this type of freemium product will target the B2B market–as companies grow larger, the service switches from free to paid. Instead of paying for space, premium users are paying for the ability to have multiple users. Asana, a project management software which allows teams to work together without email, is a great example: For small teams of under fifteen people, the service is free. For larger teams or companies, the product is paid. Another example is Mailchimp, a service that sends newsletters and emails. With a low subscription base, sending emails is free, but as your subscribers grow, you mature into paid version of the product.
While most wouldn’t consider it freemium, keep in mind another free-to-paid product launch option: The free trial. In this traditional model, users have a limited time (usually 30 days) to use the product for free.
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