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Freemium Pricing: Unsuited for Most Business Applications
In the freemium model, a base product or service is given away for free, but proprietary features, functionality or virtual goods are available only for a fee. The term Freemium was coined by Jarid Lukin in 2006. The freemium model has led to the success of a number of businesses, like Spotify and Dropbox. Even parts of Microsoft Windows 10 have adopted the freemium model.
But while some businesses have had success in using Freemium to accelerate their launches, freemium isn’t usually enough to keep their businesses revved up for long term. Freemium often works well for consumer applications, but not as well for business-focused apps. The idea is that once businesses are hooked on software that they were able to get started with for free that they’ll see value and buy premium features that will extend the usefulness of the application.
Jason Lemkin, Managing Director at Storm Ventures, told BusinessInsider that “We’d all love to do freemium because we don’t have to hire salespeople. But what we all kind of figured out is there just aren’t enough businesses in the entire world to get to a $100 million business at freemium… The pendulum has definitely swung back away from freemium to enterprise. Most of the B2B IPOs that have been successful, like Salesforce and Workday, are all enterprise-y. They’re not freemium.”
Sean Ellis, Chief Executive Office of Qualaroo, told BusinessInsider that “We learned from the freemium experience that making a completely free product didn’t accelerate adoption very much. So we just gradually increased the prices, and each time we did, we did not see a slow down in demand. I think companies saw a lot of failures from those who tried to do freemium. Ultimately, it has to be implemented in the right situation.”
