One of the more successful business models in the web world has been the freemium model, where you give away a basic version of the product to the masses, then charge power users for added functionality. The popular example of this is photo sharing service Flickr, where most users use the free version, but some (like me) pay a nominal annual subscription to have multiple photo albums and other bells and whistles.
Most examples of freemium have come in the b2c space, including products like Flickr, Trillian or Skype. There have been some freemium-like models around b2b content, but those have mostly been built on providing limited content for free (e.g. Hoover’s or the FT) or on a temporary basis, rather than providing full content for free, with functionality being the difference in the premium version.
I believe the freemium model can also thrive in the b2b space. This is especially the case in a difficult economy. In a market like the current one, the freemium model helps in two clear ways:
- Brand awareness and lead generation: in a tight economy, marketing dollars are scarce and the cost of introducing a new product can be daunting. If your offering is compelling, the freemium model provides an avenue for you to generate brand awareness through word-of-mouth and social media marketing.
- Shorter sales cycles: long sales cycles can be like a slow death for a company. In this market, budgets are being cut and it’s difficult to generate new spending. The freemium model allows you to cheaply get your product in the hands of potential customers, some of whom will desire the added functionality of the premium version.
A frequently raised concern is that in a down economy, users will “make do” with the free version and not upgrade to the premium version. While that’s a valid concern, if your premium version provides quantifiable benefits over the free version, there will be a portion of your audience who will pay for that. There will always be peripheral users who might have purchased the premium version were there not a free one, but chances are those are the users who see only modest value in the product. Whether they would have bought in the first place is questionable and if they did, it would have likely been a long sales cycle.
The freemium model doesn't make sense for every product or service. In order to succeed, the free part has to be comprehensive and compelling, so that users will become heavy users (can't simply provide teaser content). At the same time, the premium features have to be so compelling that for a portion of your user base will convert to the paid version.
This Wednesday, Alacra will put this model to the test, launching a new platform and application with both a freemium and premium version. Check back tomorrow for details.