Home

Freemium Summit Notes

Last week, I attended the Freemium Summit. It was a fascinating event with successful companies sharing insights on functional marketing models. Below are my takeaways. Reflecting on the speakers’ points, these businesses seemed more similar in nature than I expected. 

When to leverage a Freemium marketing strategy

An effective distribution channel doesn’t exist: this is true for those businesses targeting the small and medium business software market or…

Incubment or monopolistic competition is driving up customer acquisition costs: LogMeIn faced Microsoft, WebEx and Citrix with 1% their marketing budget.

Variable cost is low: ensuring the cost of servicing each new free customer is de minimus is key to quickly building up a large installed base. 

Key lessons

Generally, user conversion rates to paid products vary from 1-4% across sectors. Across small and medium business software, social and mobile gaming and music, paid upsell conversion rates were fairly constant. Many companies found that cross device usage of a product was the best correlating factor to paid upsell.

Free users are assets, if you can control the cost: Free users build network effects and user mindshare that are useful for later upselling and refer a friend incentive program .Evernote measures revenue per active member per month as a key performance metric (KPI). In month 1, a user will generate $0.02 per month. In month 24, an active user wil generate $0.75. Focusing on upsell and building value drives enormous revenue opportunities. As for referral marketing, Dropbox’s two sided incentives offer increases conversion rates by 60%! 

To survive, companies need to focus on the metrics that matter – revenue metrics: WordPress has some impressive usage figures: 250M monthly visitors across 100M blogs. But the key metrics are the ones that drive activity and consequently revenue: 400,000 daily posts and 200,000 paying bloggers.

The company’s team must focus on revenue. 30% of DropBox’s staff, like many other successful freemium companies, are focused on paid conversion funnel optimization. We discussed this last week.

Organic funnel is the key to driving large sales: 90% of YouSendIt’s enterprise sales come from organic/individual upsell.

Paid users’ demographics will differ than the customer base as a whole. Pandora One, the premium version of Pandora, skews heavily toward males 30+ where the site’s audience is 50/50 female/male and broadly distributed across age groups. Understanding the needs of a demographic who is willing to pay was essential to their success. 

Marketing effectively on a low budget is essential. Pandora discovered how difficult it was simply to increase awareness of a paid product. It took time, product refinement and demographic selection to be effective. YouSendIt relies on a naturally viral product: a large file generally is delivered to four people.

Conclusion

An enlightening event, the Freemium Summit demonstrated that the free marketing strategy can be incredibly effective and drive significant revenues across sectors. If you have questions or need additional data, let me know in the comments.

Advertisements

3 thoughts on “Freemium Summit Notes & Data

  1. Thanks for posting your notes. I found particularly interesting your remark that “these businesses seemed more similar in nature than I expected.”In terms of differences between freemium businesses, any thoughts on the following?There are two types of freemium service. (1) Here’s a free service. By the way, here are some premium features you can pay for and use if you want. (2) Here’s a service. You pay to use it. But there’s a very limited version, so that you can try it out for free.Most firms seem to come into category (1), a possible exception being 37signals. The “two types” thought comes from a post prompted by another freemium service – Tumblr:http://changingway.org/2010/03/24/tumbling-toward-freemium/

  2. Andrew,Thanks for reading – you have a great blog. I think differences between the two examples you cite are differences in marketing and customer acquisition techniques, but my bet is that in terms of product design/market fit, there isn’t much difference.They are likely a result of the variable cost structure for each business. I would be the marginal user cost for Tumblr is much lower than 37Signals. Also, in Tumblr, there are significant and valuable network effects since free users drive traffic and google rank, where 37Signals has far less effective network effects so it doesn’t make sense to carry the cost of these customers.Ultimately, both businesses are looking to upsell a certain fraction of their customer base to a paid product. The difference is a function of the marketing cost each is willing to bear.

Comments are closed.