Sunday, March 28, 2010

The Freemium Manifesto - Insights from the Freemium Summit

The full-day Freemium Summit in San Francisco on Friday managed to exceed the expectations of mine (and everyone else I talked to), thanks to a stellar set of speakers and panelists (special kudos to organizer Charles Hudson).

If you search for #freemiumsummit on Twitter you will get a taste of the firehose of stats and insights shared, and there have already been a couple of blog posts about the event (here and here). Having been an advocate of the freemium model for the past 5 years (evangelizing freemium mobile calling at jaxtr and now freemium website building and hosting at Webs), I left The Summit with a stronger sense of purpose and deeper conviction in the following set of ideas -- my "Freemium Manifesto": 

Freemium is as virtual as the Web
Freemium business models work only when your marginal cost of delivering the service to a new user approaches zero. In traditional goods and services industries, such utopia cannot exist as delivering any physical good or service has real costs associated with it. This is not so in the virtual world as processing, bandwidth and storage costs approach zero. The best you can get in the non-virtual world is "free trial" or "first-one-is-free" type of offers, but those are really marketing tactics and not fundamental attributes of the product or the business model. That is why online businesses that got started in early days of the Web opted for the "free trial" model as they faced steep storage and bandwidth costs (e.g., legacy web hosting companies).

Freemium is  a product concept, not a marketing problem
Unless you build the DNA of your product around Freemium, it will never work. That's why approaching it as a "marketing" problem would be disastrous. Freemium needs to be built into the Product, and every feature developed, the user experience, flows, funnels, upsell paths, etc., all need to be evaluated in its light.

Freemium is a disruptive business model
Products and services that are not built on the freemium model have a very hard time changing and adopting to the freemium model. Just as the case of disruptive technologies, established non-freemium businesses have a serious heartburn over cannibalizing existing revenue lines by giving away things for free. Entire departments would have to be laid off and/or retrained, and the business would have to take some time off to learn the new tricks of a new way of doing business. In other words, lots of time, money and ego has been invested in building the existing business model and its projections, which means real inertia. So, few Boards would seriously advocate such change to the way things have been done. Which leaves ample elbow room for startups to come and take away market share. This is what Skype is doing to the Telco industry, Zoosk to the Online Dating industry, and my company Webs to the Website Building and Hosting industry.

Freemium is the future
Although all of the panelists and speakers at The Summit kept emphasizing that freemium may not be right for everybody, I believe that for online businesses, freemium is the future. As the costs for delivering virtual goods and services drop, it is just a matter of time before someone in your particular industry starts figuring out how to give away something for free online, FOREVER, while building a successful business on top of it. If freemium is not part of your business model, now is the time to challenge yourself!

Do you agree or disagree? Please share your thoughts in the comments below.