Freemium: from razor blades to info vendors
Jinfo Blog

By Jan Knight

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The information vendor business model which I’ve often referred to as “hybrid” (those who offer both a free and fee-based tool) I just learned is actually called the Freemium model. It makes sense (Free+Premium=Freemium). I recently had to research the Freemium model as it relates to the software industry and I see many of the considerations and best practices being very applicable to database and information vendors, and anyone offering digital content.

Like most business models, there is ongoing discussion as to whether it works for all types of products and audiences. Some companies like LinkedIn, Dropbox, Skype and Evernote are seen as having great success with this model. Others cited as not being as successful are Ning (Social networks)  Phanfare (photo sharing), and LucidEra (data analytics)

There are different reasons for successes and failures but some considerations to give thought to before launching a Freemium model may help guide vendors.

• The free service should have real value to build a user base and there should be at least one critical action a user can successfully complete with hitting a paywall. It needs to provide something "useful" for customers.
• The paid features should add substantial value to the free service in order to be compelling for users to pay.
• The free offering needs to be as good as or better than other free alternatives.
• It should be easy for prospects to access and refer to colleagues.
• Freemium can be as much about workflow and access issues not just “features”.
• Conversion needs to be easy for users to accomplish – preferably automated – and those converted users should be surveyed.

In addition to the cost of acquisition – how much does it cost to get a new customer for the fee based version – the conversion rate is really important and how do you convert those free subscribers? A Rubicon Consulting survey cites between 0/1% to 50% as the potential conversion range. That’s quite a wide range of course, and a Fast Company article cites Evernote as being a success with about five per cent conversion.

As Phil Libin of Evernote is cited as saying, “People love getting something for free. Having a free, yet still useful, version of the service you’re selling is a proven way to encourage rapid adoption among people who might otherwise pass you by.”

By the way, for those who are wondering about the razor blade, the term comes originally from 1865 when King Gillette started giving away his safety razor away for free, creating demand for his high-margin disposable blades. That was a really cutting edge success story.

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