Aug 19 2010

The Freemium Myth – more data

My last post with some thoughts on product pricing has received a ton of traffic, comments and email. Clearly this topic is one that a lot of entrepreneurs care about (and struggle with). A few people pointed me to a great post by Ruben Gamez of Bidsketch on the Software by Rob blog that talks about freemium plans and why, in Ruben’s view, they aren’t always drive the results companies are looking for. It maps well to my thinking (I directly called the freemium model into question in my pricing post). There’s some great data in the post – definitely read the full thing. Here’s a few that caught my eye:

Bidsketch started out with a freemium model. Ruben carefully documents their early success with this (by early, he’s referring to a weeks, not months) and their challenge only a few months after launch of a sub 1% upgrade rate and rapidly increasing support challenges (they had a huge user-base – just not one that was paying). And then he did something “radical” – and completely got rid of the free version. This change led to an 10x increase in paid conversions.

Jason Fried from 37signals had a similar experience. “…the majority of people who are on pay started on pay…” he says. And by correlation, most people who start on free stayed on free.

CrazyEgg doubled their revenue the month they dropped their free plan.

We’ve had similar experiences with companies in our universe that struggled with freemium pricing plans. And while there are clearly companies that have made a success out of offering a free service to a large percentage of their user base and charging the few that are willing to pay (including some very successful ones in our own portfolio) I’m hoping that more companies at least consider that their best pricing plan may not need to include “free”.