Freemium: Something for nothing

As I saw firsthand at SXSW last week, many companies are still trying to figure how to make money in a market where online customers expect to get everything for free.  Here are a couple of interesting points from a keynote featuring Guy Kawasaki and Chris Anderson (author of the book “the Long Tail”).

Question: How has the economic crisis changed things for online businesses?

  • Two years ago companies were operating in a monetary and non-monetary economy
  • The business model went something like this: raise money, sell company, if not try Google Adsense
  • Today: need you a freemium business model right out of the gate

The magic number they cited was 5% of users need to upgrade to a premium service for a business to be viable. I can’t recall if  a source was identified for the number. To be honest, this felt a little high to me.  In a previous life marketing downloadable shareware software that had a premium upgrade path, we had very profitable products if we could get 1% of the users to upgrade.  The challenges back then (as they are today) were getting enough users to install the free version and creating a strong enough value proposition for upgrading.  In the end, we keep coming back to the basic needs of a large customer base and strong revenue model, right?

Author: Frank Days

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