It looks like someone put some gas in the Freemium hype machine again! I suspect Freemium is going to be a major theme among SaaS and Web App startups in 2011. As you know, Chargify had a major pricing fiasco on their hands recently as they moved from 100% free to a Freemium offering. Some of their missteps - ironically? - were because they didn't really understand how their customers were leveraging Freemium themselves. Hootsuite had their own issue a few weeks before Chargify.
For Sixteen Ventures, 2010 has been the year of Freemium, starting when we published "The Reality of Freemium in SaaS" paper in January. Since that paper was published, it has been downloaded or viewed at least 20k times - that we know of - and keep in mind it is a ~25 page PDF - not exactly viral fodder. But, that paper really turned Sixteen Ventures from the SaaS Revenue Modeling & Business Architecture company we were since our inception in 2008, to *THE* company to turn to for Freemium & Pricing for SaaS, Web & Mobile App companies. Yes, even though we could have been perceived as "anti-Freemium" for the most part we were not - most people recognized that we are only anti-hype!
Aside from the paper getting our firm - and me - a great deal of publicity on Read Write Web, ZDNet, Sandhill.com as well as mainstream print magazines like Fast Company and Inc. Magazine, it even got me a spot at the first Freemium Summit in San Francisco back in March. Ironically, this was a conference that I initially made fun of on Twitter. Even so, I was invited and I presented "Freemium in the Enterprise: Proceed with Caution." I was the only "contrarian" (realist!) to speak at the summit and I thought the presentation went well. The slides from the presentation have been viewed ~3500 times on Slideshare. On October 25, 2010 the second Freemium Summit will take place in New York City. I honestly wish Charles and his crew the best of luck, but I'm not exactly excited about the lineup this time around.
I really thought my presentation at the event went great - for Sixteen Ventures it was great as we got some new clients directly from that presentation - but I suspect my "negativity" toward the subject of the conference was not ideal. Besides that, it was also counter to the forward-looking ideas that many influencers had and again, my stance was not ideal. For the NYC Freemium Summit, I contacted the organizers to see if I could present again and share what I have discovered since March, to no avail.
The reason they gave was that this time around they wanted different speakers, different experiences, etc. I can totally dig that - even though they brought some folks back from the first one, like YouSendIt. But I told them that I always try to give a different presentation whenever I present (anyone who has seen me present at more than one event knows this) but in this case I have a substantial amount of new material to present. In 2010 Sixteen Ventures has worked with some very large companies - like one company with >$1B in revenue - on their Freemium strategies, some very small and early-stage companies, some folks that got funding because we told them not to do Freemium, and many companies outside of North America. But this was not enough for them.
So I wrote Charles the following via email back in August - "Games, B2C, and even narrow-band, horizontal/utilitarian SaaS plays like box.net, Yammer (I have some really interesting info on their 'land and expand' strategy from the field!), etc. are great to hear from, but I bring a unique perspective that I think your audience needs to hear. Again, if it isn't me, it should be someone."
I am so concerned by the popularity of Freemium among startups and want the Reality of Freemium message to be out there so much that I told Charles even if it wasn't me or Sixteen Ventures, to please have someone that will speak to the potential downside and huge risks of Freemium. Just look at the speakers - where's the contrarian? Where is the company speaking about the risks of putting all your company's (or often personal) eggs in the hype that is the Freemium basket? Who is the person that won't pull punches and will tell it like it is? The speaker that will tell you that pure-play Freemium does not exist at scale?
Maybe that role will belong to Ning - they are speaking at the event after all. Of course they got a PR/Communications person to speak for a company that had >$100M to work with to learn their lessons - I just hope the context is right because that *could* be a killer presentation given the fact that they dropped Freemium earlier this year. Hootsuite - mentioned earlier - has also had some issues and will be speaking. Hoping for some very transparent lessons learned... fingers crossed, but not holding my breath.
And then there is Sean Ellis - a Silicon Valley marketing guy who worked at or with a number of horizontal SaaS & B2C web companies - all with tremendous amounts of funding and huge addressable markets - that leveraged the Freemium model. His advice is fantastic and you should fervently consume his writings, watch him present, and otherwise listen to him - with the caveat that he generally speaks about what he knows - well-funded companies with giant addressable markets. He announced recently that he has started his own web company.
Sean's startup - which received funding from some high-powered VCs in the Valley - will somehow (its still in stealth don'tcha know) enable startups to leverage Freemium to make more money. This is absolutely fantastic! I hope he pulls it off and I wish him nothing but the best of luck and Godspeed. The fact that Sean received investment from multiple sources indicates that the "Freemium" market is considered to be very large.
Let me be clear here - his market seems to be companies leveraging Freemium for their startups. That is the market - much like the market for Sixteen Ventures are SaaS vendors & Web App companies. Freemium itself is not a market, though - just like SaaS is not. The only folks those are "markets" for are those with products / services targeting companies leveraging Freemium or the SaaS Business Architecture.
Now, what exactly Sean and his crew will be doing, I'm not sure. I have heard rumblings and rumors of, and even pitches from, companies trying to help Freemium SaaS & Web App companies by aggregating all of the free users of different SaaS & Web Apps in an effort to reach critical mass quickly so they can monetize in various ways. Perhaps that monetization is via advertising, perhaps it is a revenue share from cross-sales, etc.
Sean and his team could be doing something less innocuous than user aggregation, perhaps building out "a Freemium Platform that product companies can use as a SaaS service" to "setup, test, measure and optimize a Freemium strategy." That was taken from a Quora question linked from a new Twitter account setup very recently and promoted by many of the Valley/SF heavyweights which has the blanket statement "Freemium is the Future - Are You Ready?" in the bio. Who knows, but no matter what they do I'm sure they'll get traction since they *own* the web startup "airwaves" - at least around Silicon Valley & San Francisco. We'll have to wait to see what pans out...
But, here's the reality of the situation. A tool to measure and optimize a Freemium strategy or a tool to aggregate and monetize free users, or both, is not a way to make Freemium work for you if it is the wrong strategy to begin with! If you have a product or service that has a total addressable market that is small, Freemium is likely not for you regardless of how you might be able to monetize the free users, since there aren't enough to go around to begin with. It is probably better to focus on building a product people need and will pay for and to make your money off of your customers and not worry about free users. Remember, Freemium is a marketing strategy and just like Russian Roulette, Freemium is a numbers game! The main beneficiaries of the speculative potential scenarios I described above would be the company doing the aggregating or the one offering the management/optimization services!
In the aggregating scenario, the aggregation company really only needs a few free users from lots of startups because then *they* reach critical mass. But for either scenario, the part that I feel could be potentially harmful is that there is no reason to warn small, niche startups (or even wide-band horizontal) companies of the danger of Freemium when the company offering the service will only benefit from it. I also presume the initial "investment" to connect to this aggregation framework will be nominal making small startups feel like "why not?" - its easy and free/cheap. This isn't saying anything about the fact that the aggregator would own the "user" too... But its all speculation...
The fact that there is so much noise starting to happen again around Freemium just means that we'll have to ramp our efforts to bring some level of reality to the mix. It is very much an uphill battle - we're flanked from above and surrounded - but we're always up for a fight, and in this case, it is also the right thing to do!
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