Making Freemium Work
Freemium has always been an appealing solution to the million dollar question of how to make money online. But with an internet filled with free content and services, how can you get enough people to actually pay?
I attended MediaBistro and Charles Hudson’s Freemium Summit East this week in New York City to explore that question. And while there were lots of good presentations and takeaways—you can check some of them out here (highly recommend looking through Jonathan Boutelle’s)—my recap will focus on how a few themes of the conference supported one key lesson:
If you’re going freemium, you have to go big.
Freemium is a model that only works at scale. A good conversion rate from free to paid is anywhere from 1-4%; fully 95% of your users will probably never give you a dime (directly, anyway; more on that later).You’re going to need a huge number of users to make the economics work.
The most obvious way to get there is through viral and word-of-mouth marketing, which freemium lends itself to beautifully. As YouSendIt Founder and CTO Ranjith Kumaran put it, you catch mindshare with that magical word, “free.” The challenge is to make sure everything that brings you more users is free. For instance, logically it makes sense to charge the users who use the most bandwidth, but in most cases power users are also your loudest advocates. If they abandon ship, you’ve got a problem. Similarly, balancing your investment in integrating with social media—Twitter, Facebook, LinkedIn—with the value you’ll get back should always be top of mind. And while time is money, you’ll have to be patient. Seeding virality is hard and takes time: big players like SurveyMonkey have been at this game for 5+ years.
While you’re growing, pure 95/5% economics may not work. Enter multiple revenue sources: consider how you can monetize your unpaid users through advertising, whether that’s display ads like Slideshare has, promoted tweets in Hootsuite, sponsored newsletters, or another solution. Paid user revenue tends to be fairly predictable, if slow, while advertising revenue varies with traffic but can be immediate; together they can help create a steady upward curve that allows you to invest in and plan for the future.
Key to supporting viral growth is to cultivate happy users (especially if you’re exposing them to ads), and that demands customer support. Customer support can be very resource-intensive, but an elegant solution, laid out by Get Satisfaction’s Thor Muller, is to empower your users to help each other. Create a public Q&A and support community and make it front and center to your UI. As Get Satisfaction’s deck showed, help people help each other and you should see the number of support tickets drop dramatically. Of course, for your paying users, it’s important to supplement the help community with additional, personal support options.
Finally, a great way to help make big happen is to expand your business globally. Not only does North America only represent 15% of world internet traffic, it’s also the slowest-growing market. The more you can enable and empower international use of your service—through multiple languages and diverse payment methods—the better your chance of quickly growing your userbase.
Notes
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