Freemium is alive and kicking

One thing that is hardly ever mentioned when evaluating freemium is that you need deep pockets to survive until enough people start paying for the premium offering. So it almost never makes sense for bootstrapped businesses. The best bet is to figure out the market first with a paid version, and then use free as a growth engine, just like Mailchimp did.<p>Before blindly adopting freemium as the default pricing for your app, think long and hard about this:<p>Freemium has a longer sales cycle than <i>enterprise</i>.

The difficulty with getting freemium right is in having a free product that's sufficiently useful to have people take the time to use it and a paid version that is worth paying for.<p>Convincing someone to switch from paying $0 and $1 is hard, much harder than $1 to $10. If there's not enough value in the paid version, why switch? Finding that killer feature that will cause people to pay without chasing off the free users is hard.

My site, Scribophile, was freemium from day 1 and was profitable from day 15. Freemium is still an excellent way to hook people on a service, because there's no risk to them. If they find your service truly useful, they'll pay without question.<p>I am, however, thinking of dropping the freemium model. Not because it wasn't successful, but because now that Scribophile has an established reputation, requiring an up-front payment would help keep out trolls or members who aren't interested in participating. The idea is to improve the quality of the community, not take a dive into my swimming pool full of gold coins. But I'm still pondering if that's the right decision.

(from a thread yesterday about when Freemium fails)<p>One of the problems with the freemium model is that many people sometimes seem to pick a revenue target arbitrarily and then backfill their projections with the necessary conversion rate. Obviously, few firms or entrepreneurs want to expose their pricing models publicly in forums like HN, but startups need to be able to answer the question of what marginal utility they provide to their potential customers. The 'less than a cup of coffee!' model of app pricing, for example, assumes that since coffee is such a small thing users will be just as willing to throw down $3 for an app. But the coffee has physical, psychological and social value for the consumer that pays off on a predictable time horizon - and pays off not just the $3, but the time spent standing in line or buying and brewing your own coffee. Consumer preferences in for this commodity are sufficiently complex to support a large and extremely competitive market. If it was 'just coffee' then it would cost the same everywhere and vendors would be limited to normal rather than economic profits. A better approach for vendors might be to assume your target consumer does not have endless disposable income. What value does your product or service provide that would make a coffee consumer go without their favorite beverage for a day? Or if not coffee, a competitor's offering or some other part of the consumer's status quo? How does your offering compare to the composite bundle?

It is also important to understand and investigate whether free users are helping your business or not. Not all business have network affect like Dropbox and can benefit from free users.<p>Sometimes, free users are actually hurting (they will write bad reviews, send hate email and write hate posts saying that "I don't want to pay", etc.)<p>For example, 37signals Basecamp does not have free tier any more. It would be great to hear from them why they decided to remove it and data behind their decision.

I think freemium is a great model if you can find the right mix of bringing in new users as well as upgrading existing users.<p>Some are going to stick with free forever as long as it fills their needs. However, some are going to use it so much that, if the price point is right, the upgrade is a no-brainer.

My cloud BI is absolutely free (<a href="https://my.infocaptor.com" rel="nofollow">https://my.infocaptor.com</a>) but I make it from the enterprise downloads.<p>I have now an idea how to keep the service free for ever and charge only for certain things.

Is this a YC vs Techstar philosophical difference?