(Every Tuesday, Kyle St. Romain will talk about the business and legal side of the app world. While his opinions don’t always reflect those of Rocksauce Studios, you should hear him out…the guy knows his stuff!)
It’s no secret that I’m a big fan of the Freemium business model. I think it’s one of the best ways to validate your product and develop a loyal following whilst you get a better grasp on how you’re going to monetize. Yeah, it would be nice if our customers were all willing to shell over their hard earned clams from day one, but why not give them a chance to try before they buy? Freemium not only helps expose customer one to your product, it also helps your product grow virally (by word of mouth); friends are more likely to act on a close recommendation that doesn’t cost them anything.
I obviously think the Freemium model is great, and there are a lot more benefits than the shortlist I pointed out above. If you want to read more about my take on the Freemium business model, check out my other posts: A Look at Dropbox’s Business Model, and A Fresh Take on the Freemium Business Model. However, I don’t live on an island and respect different opinions about the Freemium model.
Meet Rags Srinivasan, management professional and writer over at Gigaom.com. Mr. Srinivasan recently wrote an article titled Freemium has run its course, which noted some of the inherent pitfalls with the pure Freemium approach and offered advice on how to avoid them. The article also introduced me to where the Freemium business model first took legs: the Hershey’s Experiment, which is a fancy MIT experiment that basically concluded more people are willing to try a free product than one that costs money. Eureka!
Much to my comfort, Mr. Srinivasan gave proper credit to my favorite Freemium success story: Dropbox. He also noted Evernote and RememberTheMilk as other examples of Freemium prosperity. However, the success of the aforementioned apps was distinguished from Freemium dumb luck as brilliant and well-founded marketing strategy. I agree. The article continued: blah, blah, blah, and concluded that it’s time to rethink the Freemium approach. I agree to disagree, and here’s why.
First off, the app industry, mobile or otherwise, is on fire right now. So hot that it’s hard to find good developers and companies who aren’t booked for the rest of the year; even for ready money. The flood of apps entering the marketplace everyday is diluting what used to be competitive advantages for other apps, like free or discounted versions. This isn’t to say that offering a free version of your product doesn’t help you gain customers any more; rather, it’s nothing new to have a free version like it used to be. Of note, “demo” versions need not apply – “Free” sounds exponentially better. Thus, you need to do even more to distinguish your product by building something sustainable. A sustainable app (company), to me, needs to meet the following criteria:
- A) Your app solves a problem or answers a need. If your app isn’t solving a real problem, it will never sell. Period. Remember: boredom is a problem that can never be solved.
- B) Don’t scare away customers before you have them. This is where Freemium really helps out. An expensive price tag will certainly scare away customers who may have even been willing to pay the sticker price for your app, but you need to give them a chance to realize how great it is at a low cost. In this same vein, identify your target market and go after it. An otherwise great product can become quickly lost in the wrong market. Even worse, the wrong market may give you disparaging reviews, which may impede future success.
- C) Your app is built for the customer. No matter how cool you think your app is, it sucks if your customers don’t like it. Build something, let people try it, listen to what they say, make the necessary changes, and repeat. This process is never over.
- D) Always be mindful of the money. From day one you should be thinking about Monetizing Your App (Or How to Make Money Off Your App). Even if your app gets millions of users, you will fail if you can’t make money off of it. Freemium doesn’t mean free, to everyone, forever; it means you’re giving people the chance to try your product hopeful they’ll take the bait and pay for more.
In line with Note D above, I’ll also agree the Freemium business model has run its course insofar as companies that launch new products for free, in order to build a huge customer base that they later hope to convert into paying customers, probably aren’t sustainable. *good news for the rest of us who want to make money!* Facebook, Google, and Twitter are guilty of this. These three companies give away so much, without a real plan as to how to capture revenue from their customers. Now, they do make a boatload of money through advertising, which is nice, and they have become very entrenched in the very fabric of our society. Yeah, it would be great to be the founder of one of those. For the rest of us, free probably isn’t the right model (distinguished from Freemium – compare LinkedIn to Facebook).
So what do you think? Is the Freemium business model dead in the water, or is there hope yet? Certainly it doesn’t work 100 percent of the time, every time, but it does have its place. Let us know what you think in the comments below.