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Adventures in freemium

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Navin Ganeshan
Navin Ganeshan

This document discusses the freemium business model and provides advice for companies considering it. Freemium relies on the irrational behavior created by offering products or services for free. It works best for solutions targeting large markets where marginal costs are low and the product is highly engaging. The document outlines best practices for streamlining signups, driving conversion, marketing effectively, controlling costs and metrics. It analyzes case studies of companies that succeeded or struggled with freemium implementations. Overall, it argues freemium can be effective when properly executed for the right type of product or service.

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Adventures in Freemium Navin S. Ganeshan March 13, 2013
Get  a  ta&oo  for  one  year  of  free  movies?    18  people  did…  
Lindt   Hershey   They  Chose   $0.20   $0.05   76%  Lindt   $0.15   $0.01   73%  Lindt   $0.14   $0.00   14%  Lindt   The  Penny  Gap  -­‐  Lindt  Truffles  vs  Hershey  Kisses  
“Free” is a special price – creates non-linear demand & drives irrational purchasing behavior “Making money around free will be the future of business” – Chris Anderson
Freemium is one of many ways to capitalize on free Free Messaging Free Components Free Trial Freemium
Freemium  is  about….   capitalizing  on  the  inherent  sFckiness  of  your  product    …not  just  behavioral  manipulaFon  
Is Freemium Right For You? Broad Solution, No   Big market? Paid or Yes   Freemium Free-Trial (See execution) Low marginal No   cost? Yes   Work on product and come back Does your when you’re ready No   product rock? Yes  
Executing Freemium 1.  Streamlining Signups 2.  Compelling Conversion 3.  Meaningful Marketing 4.  Controlling Costs 5.  Managing to Metrics
Streamlining Signups Invest Early in Organic Find Channels that can free Search qualified users (Freemium can’t support paid search) (“psst..want to give away a free product?”) Referrals/incentives (leverage network effect)
Compelling Conversion Ideal conversion drivers are those that occur naturally with increased consumer investment and value delivered Good   •  Usage-­‐Based   •  Feature-­‐Based   CreaNve   •  Component-­‐Based   •  Ad-­‐Removal   •  Service/Support   •  Mobile   Bad   •  Humor/Goodwill?   •  Time-­‐Based    (not  Freemium!)   •  Views  or  Paywalls  (#%@$)  
CreaFve!  
Meaningful Marketing Build a communication plan – a matrix of… •  Who – target users •  When – times/triggers •  What – message, content (but you already knew this….)
Controlling Costs Service/support Overuse/Abuse Rely on email/self-service Monitor, monitor, monitor Help users help other users Use the big-stick – service- agreement
Managing to Metrics Metric Explanation Acquisition Visitors to Users Acquisition cost Marketing/Advertising cost per signup 2%   varies  widely   Effective Marketing/Advertising cost per Acquisition cost paying customer Lifetime Value/ Customer Lifetime Value (e.g. Avg Conversion Tenure X Price) Users To Customers PV 1-­‐3%   Daily signups Number of signups per day Conversion rate Percent of free users who convert to paid Lifecycle >90%   Retention & Churn retenNon   “Free” Product, Support costs per Free user Operating Costs Terminology may vary Your mileage WILL vary
Case Study #1 Switched from Freemium to Free Trial in 2010 Before 300K Free sites, 15K Paid 6% Conversion After 35K paid sites after switch, grew to over 200K by 2012 Learnings Out of Control Free-Loader Costs
Case Study #2 Poster-child for Freemium 50M Users 4% Conversion When They Started SEM didn’t work – $338 CPA for a $99 product – fail! What Did Work Stopped search marketing Referral programs increased signups by 60%, Now 35% of daily signups from referral Learnings Search marketing did not work because demand did not exist. Referrals/WOM drove awareness, created demand.
Case Study #3 Freemium Failure…and recovery Their initial Freemium model Free for low-usage – under 50tx/mo Almost went bankrupt in 1 year What Did Work Paid model for all but test-levels Went from 25 to 225 cX/month YoY Learnings Conversion triggers not matched to customer profile – too many users were subsisting in the free tier with no natural trigger
Case Study #4 An IDEAL Freemium Story 34M Users, 1.5M paying 4-6% Conversion No social/network advantage Purely driven by product quality and WOM Unique aspect – negative churn as usage increases after first year – “The Smile Graph”
So…are you ready? q  Qualifiers – is it right for you? q  Broad Solution / Big Market ? q  Rockin’ product? q  Low Marginal Cost? q  Execution – what’s your plan? q  Streamlining Signups q  Compelling Conversion q  Meaningful Marketing q  Controlling Costs q  Managing to Metrics
Interesting Case Studies Experimented  with  Free   Great  case  study  on   Trial  w/out  CCard     virality  and  sFckiness   Moved  from  Freemium   Moved  from  Freemium   to  Free  trial   to  Free  Trial   Moved  from  Free  Trial   to  Freemium   Good  learnings  on   sFckiness  and    cost-­‐ control  in  Freemium   Good Reads Predictably  IrraNonal   Free   The  hidden  forces  that  shape  our   The  future  of  a  radical  price   decisions   Chris  Anderson   Dan  Ariely  
Good Luck! Navin Ganeshan March 15, 2013 nganeshan@gmail.com @NGaneshan

More Related Content

Adventures in freemium

  • 1. Adventures in Freemium Navin S. Ganeshan March 13, 2013
  • 2. Get  a  ta&oo  for  one  year  of  free  movies?    18  people  did…  
  • 3. Lindt   Hershey   They  Chose   $0.20   $0.05   76%  Lindt   $0.15   $0.01   73%  Lindt   $0.14   $0.00   14%  Lindt   The  Penny  Gap  -­‐  Lindt  Truffles  vs  Hershey  Kisses  
  • 4. “Free” is a special price – creates non-linear demand & drives irrational purchasing behavior “Making money around free will be the future of business” – Chris Anderson
  • 5. Freemium is one of many ways to capitalize on free Free Messaging Free Components Free Trial Freemium
  • 6. Freemium  is  about….   capitalizing  on  the  inherent  sFckiness  of  your  product    …not  just  behavioral  manipulaFon  
  • 7. Is Freemium Right For You? Broad Solution, No   Big market? Paid or Yes   Freemium Free-Trial (See execution) Low marginal No   cost? Yes   Work on product and come back Does your when you’re ready No   product rock? Yes  
  • 8. Executing Freemium 1.  Streamlining Signups 2.  Compelling Conversion 3.  Meaningful Marketing 4.  Controlling Costs 5.  Managing to Metrics
  • 9. Streamlining Signups Invest Early in Organic Find Channels that can free Search qualified users (Freemium can’t support paid search) (“psst..want to give away a free product?”) Referrals/incentives (leverage network effect)
  • 10. Compelling Conversion Ideal conversion drivers are those that occur naturally with increased consumer investment and value delivered Good   •  Usage-­‐Based   •  Feature-­‐Based   CreaNve   •  Component-­‐Based   •  Ad-­‐Removal   •  Service/Support   •  Mobile   Bad   •  Humor/Goodwill?   •  Time-­‐Based    (not  Freemium!)   •  Views  or  Paywalls  (#%@$)  
  • 12. Meaningful Marketing Build a communication plan – a matrix of… •  Who – target users •  When – times/triggers •  What – message, content (but you already knew this….)
  • 13. Controlling Costs Service/support Overuse/Abuse Rely on email/self-service Monitor, monitor, monitor Help users help other users Use the big-stick – service- agreement
  • 14. Managing to Metrics Metric Explanation Acquisition Visitors to Users Acquisition cost Marketing/Advertising cost per signup 2%   varies  widely   Effective Marketing/Advertising cost per Acquisition cost paying customer Lifetime Value/ Customer Lifetime Value (e.g. Avg Conversion Tenure X Price) Users To Customers PV 1-­‐3%   Daily signups Number of signups per day Conversion rate Percent of free users who convert to paid Lifecycle >90%   Retention & Churn retenNon   “Free” Product, Support costs per Free user Operating Costs Terminology may vary Your mileage WILL vary
  • 15. Case Study #1 Switched from Freemium to Free Trial in 2010 Before 300K Free sites, 15K Paid 6% Conversion After 35K paid sites after switch, grew to over 200K by 2012 Learnings Out of Control Free-Loader Costs
  • 16. Case Study #2 Poster-child for Freemium 50M Users 4% Conversion When They Started SEM didn’t work – $338 CPA for a $99 product – fail! What Did Work Stopped search marketing Referral programs increased signups by 60%, Now 35% of daily signups from referral Learnings Search marketing did not work because demand did not exist. Referrals/WOM drove awareness, created demand.
  • 17. Case Study #3 Freemium Failure…and recovery Their initial Freemium model Free for low-usage – under 50tx/mo Almost went bankrupt in 1 year What Did Work Paid model for all but test-levels Went from 25 to 225 cX/month YoY Learnings Conversion triggers not matched to customer profile – too many users were subsisting in the free tier with no natural trigger
  • 18. Case Study #4 An IDEAL Freemium Story 34M Users, 1.5M paying 4-6% Conversion No social/network advantage Purely driven by product quality and WOM Unique aspect – negative churn as usage increases after first year – “The Smile Graph”
  • 19. So…are you ready? q  Qualifiers – is it right for you? q  Broad Solution / Big Market ? q  Rockin’ product? q  Low Marginal Cost? q  Execution – what’s your plan? q  Streamlining Signups q  Compelling Conversion q  Meaningful Marketing q  Controlling Costs q  Managing to Metrics
  • 20. Interesting Case Studies Experimented  with  Free   Great  case  study  on   Trial  w/out  CCard     virality  and  sFckiness   Moved  from  Freemium   Moved  from  Freemium   to  Free  trial   to  Free  Trial   Moved  from  Free  Trial   to  Freemium   Good  learnings  on   sFckiness  and    cost-­‐ control  in  Freemium   Good Reads Predictably  IrraNonal   Free   The  hidden  forces  that  shape  our   The  future  of  a  radical  price   decisions   Chris  Anderson   Dan  Ariely  
  • 21. Good Luck! Navin Ganeshan March 15, 2013 nganeshan@gmail.com @NGaneshan