The Complete Guide To Freemium Business Models. Editor’s note: This guest post was written by Uzi Shmilovici, CEO and founder of Future Simple, which creates online software for small businesses.
The post is based on a study done with Professor Eric Budish, an economics professor at the University of Chicago Booth School of Business. It also includes ideas and comments from Peter Levine, a Venture Partner at Andreessen-Horowitz and a professor at Stanford GSB The idea of offering your product or a version of it for free has been a source of much debate. Pricing is always tricky. Unfortunately, many entrepreneurs don’t give it enough thought. Free is even trickier and with so many opinions about it, we thought it would be refreshing to take a critical approach and dive deep into why some companies are very successful at employing the model while other companies fail.
The Law of Marginal Cost Pricing plays a huge part in competing for customers. Guess what? An Experience Good A good example is Dropbox. The Psychology of Free.
Case Studies in Freemium: Pandora, Dropbox, Evernote, Automattic. Don’t spend money on marketing, do offer flexibility and data exporting to eliminate buyers’ regret, make sure to capitalize on and value goodwill, and only charge for things that are hard to do.
That’s what some startups say is the key to success in the freemium business. But the biggest reason the five presenters this morning at the Freemium Summit in San Francisco — Pandora, Dropbox, Evernote, Automattic (see disclosure at the bottom) and MailChimp — are doing well is because they have great products that people want. They’ve been able to get those products to a broad audience by using the freemium model — that is, offering a free service with the option to upgrade. It’s an increasingly important business model, but one that’s hard to navigate, so their anecdotes, open sharing of data, and lessons learned were really valuable. Pandora CTO Tom Conrad That November, Pandora switched on an “ad-supported” option. Dropbox CEO Drew Houston Evernote CEO Phil Libin.
Home - Online backup, file sync and sharing made easy. Welcome to your notable world. Pandora Radio - Listen to Free Internet Radio, Find New Music. Automattic. "Freemium's" broken promises - Stephen Baker - The Numerati. "Freemium," I'm learning, is not to be trusted.
For those who haven't read Chris Anderson's book, Free, or been briefed on thousands of Internet business plans over the past five years, Freemium involves luring masses of users to free services, and then enticing them to pay for "premium" services. Google docs, Flickr, Skype, Ning, they all run on Freemium--or used to. Now I'm seeing, Freemium is risky. Companies can lure you in, lead you to entrust them with writings, photos, entire networks of friends and colleagues, and then they can coerce you into paying for it--or losing it all. I encountered this risk a couple weeks ago when I went to Flickr, Yahoo's photo site. Now I see that Ning, the "free" social network service, will be coercing its free users to migrate to paid services. This seems unethical to me (and to Shel Holtz).