I’ve long been pretty skeptical about Freemium as a go-to-market strategy. I’m always prepared to be shown examples where it’s working well however and one of those came over my desk the other day from Scott McMullan, enterprise Google apps guy.

The deck was a copy of one McMullan presented at the Freemium Summit East. In the presentation McMullan does admit that freemium products, and SaaS apps generally do put pressure on the ecosystem – in their case, a margin sliced off the $50/year Google apps revenue is a pretty small number. McMullan also makes mention of the tension that exists with the free product competing with the efforts of the direct sales team.

In Google’s case, the justification for free, or at least why they like it, is summarized by McMullan as;

  • the fact hat Google apps is competing in a mature market
  • the fact hat there is a huge addressable market
  • the fact that existing free customers give leverage
  • the network effects (think virality)
  • the generational shift as free .edu users bring their expectations to work
  • the fact that there is an additional revenue stream for Google via ads
  • the broad product allows differentiation and add ons

I’m still cautious about freemium, but in Google’s case it seems to be a good strategy – check out McMullan’s deck below

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Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

1 Comment
  • I’m a big believer in Freemium as a business model. From my own experiences I’ve started with lost of products that had a free service and then upgraded to a paying version (Lighthouse, GitHub, Capsule CRM, Hoptoad and Mail Chimp being the ones we use on My Tours)

    The key is to set your Free and Premium levels at a point where you get some real utility out of the free version but that upgrading to the next level happens at exactly the right time for your users – Once they start to see traction in their own product. You also need to set the lower tiers of the price points at the right price to make it easy for users to make that leap.

    We’ve seen 37Signals move away from this a bit now but I think this is because they have enough customers that recommendations weigh far more heavily on their conversion rates.

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