Had lunch with potential business partner today. We outlined out plans to add in a host of premium features over the next 60 days. In August, certain features would be available to only "premium" members, who would pay a monthly fee.<p>The response: "You guys should really try to build traffic up for the next year - maybe two - and once you have that large audience, then charge for it."<p>I suppose that is conventional wisdom among many tech companies but the thought occurred to me....if I were starting a restaurant, would I be asked to give away free food for a year until people decided it was good enough to pay for? What if I open a T-shirt store? Give them away until the designs get popular, then charge for them?<p>The toughest thing about building a business online is dealing with this mentality that everything has to be free. How to get past this? A related question is: how to best present this cost to visitors and customers in a fashion that allows them to fully understand what they're getting? Anyone care to point out great examples out there of other sites that are successfully communicating their value proposition?<p>Mainly just posting here to avoid finding a therapist - the overall mentality has me pulling my hair out.
> if I were starting a restaurant, would I be asked to give away free food for a year until people decided it was good enough to pay for?<p>Maybe, if you were surrounded by other restaurants that were giving away free food.<p>I'm not saying he is right. Nor am I saying you are right. I think the bottom line is that you don't want someone as a business partner, if they have fundamental philosophical differences from you, in how the business should be run.<p>Regardless, I think you'll run into trouble if you provide certain services free, and then begin charging for those <i>same</i> services. It is reasonable to add premium services, which are charged for as soon as they are available, to an existing free service. It is also reasonable to charge for everything, with nothing ever free (or maybe just a brief try-before-you-buy). I wouldn't presume to know which is best for your business.
The problem is "starting a restaurant" is a big job that not everybody can do, especially in your neighborhood. Making something comparable to your startup might not be anywhere near so difficult especially on a global basis.<p>If there's a lot of competition it would be a nice differentiator, but in hindsight I say screw it charge for premium stuff from the start and <i>if</i> it fails to get traction then "guess what everyone, we love you all so much it's free now!" and you're their hero.
Here are some quick thoughts:<p>1. Customer acquisition costs vs customer retention costs. I recall Indinero went from freemium to paid and then back to freemium. Their feature set weren't complete, and keeping them on free and eventually offering features as upgrades. You can certainly work out what it costs to service certain users.<p>2. Feedback and iteration, especially when you are yet to gain traction, some of the feedback may be invaluable if you pivot (plus you already have a list of people to market to)<p>3. Word of mouth<p>I think it is worthwhile to try both, and see whether which one gives you better feedback.
You can always start cheap and then raise prices. That is what one new restaurant near me did. Everything on the menu was about 14 israeli shekels (about $4), and then raised the prices to 18 shekels on half the items after a few months. After about a year, most things were priced at 20-22 shekels, with some items remaining on the menu for 18 shekels. 2 years down the road and they have a "premium menu" with "normal priced" items (most restaurants would charge you 30-40 for a decent entree), and you can still get cheaper food there if thats what you dig.
Guess it depends on what your product is. Evernote and Dropbox are both fairly successful and have premium products. The distinction is that they are marketed as free so as to attract and retain users, and the power users are the ones who actually buy the premium product. I would take a look at them to compare their numbers, product and target market (are you a consumer product? are you a b2b product?) to yours.
BS. I turned my free site into a free-mium site, and it changed everything. One I had the budget to hire a couple writers to keep up content production, i got MORE traffic.<p>Honestly ask yourself if your product is worth what you're charging. I know my customers get more than their cost from my product, because I've asked them. Just be sure you're not drinking your own kool aid.
It's a common misinterpretation (in my view). It's <i>good</i> to charge - that's how you validate your market. It's <i>bad</i> to get overly clever with pricing models, etc too early - that's how you waste time and money.
If there's value in the community, then the cost to build that community is MUCH MUCH greater if you're charging. The obvious drawback is that until you HAVE a community, you're delivering less value, due to its absence, at the start. Where the community adds value to the product, or if the community is a producer of content, then by all means, they should be free.<p>If the community is simply a content consumer, or if there is a willingness to pay (or an accustom to pay, as in the case of lawyers, wall street types, etc.) then by all means, ignore the freemium model altogether.