Got to love the evolving English language. My latest favorite word: Freemium. In just eight characters, it sums up the popular online marketing tool. Give away a product with limited usability for FREE, then offer to sell the PREMIUM version. Free+premium=freemium.
The freemium business model seems to be everywhere these days. Evernote, DropBox, Skype, LinkedIn and even Google offer freemium services. There are not a lot of Black Hills businesses that have taken a dip in the freemium pool, but I think there’s potential.
It doesn’t always work, though. I read a Wall Street Journal story (no, I didn’t pay) about a Massachusetts company, Chargify, whose freemium structure just about sent it into bankruptcy. It offered its billing management service free to companies that had fewer than 50 customers per month. The free version was a hit, the paid version was not. Chargify put up a paywall — another great word — and revenues improved.
At best, you can expect less than 5 percent of your users to upgrade to premium. The trick is to structure your freemium service in a way that encourages users to upgrade.
If you give away too much, or if your paid version doesn’t add value, users won’t upgrade. Why buy the cow when you’re getting the milk for free? But it your free version is nearly useless, they won’t see the value in your product. It’s like giving away a car with four flat tires, and then trying to sell air for $10,000 per tire.
Marketing is a lot more than advertising or promotion. Having a good product is not enough. Pricing, packaging, availability play a big part.
— DAN DALY