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Taxonomy of Seven Different Models of Freemium in B2B SaaS

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Freemium continues to be a popular topic when it comes to revenue and business models for everything from games on mobile devices to Enterprise Software-as-a-Service (SaaS) ventures. …

Freemium continues to be a popular topic when it comes to revenue and business models for everything from games on mobile devices to Enterprise Software-as-a-Service (SaaS) ventures.

This is a guide to the Taxonomy of Seven Different Models of Freemium in B2B SaaS was created by noted SaaS Marketing expert and Growth Hacker Lincoln Murphy of Sixteen Ventures.

From Yammer's massive Billion-dollar plus exit to Microsoft to Wave Accounting's ad-supported Freemium model, this presentation sheds light on the ways SaaS companies are leveraging Freemium in a B2B setting

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  • 1. Taxonomy of Seven Different Models of Freemium in B2B SaaS A presentation by SaaS Marketing expert and Growth Hacker Lincoln Murphy of Sixteen Ventures
  • 2. You think you know Freemium in SaaS? Think again! In 2009 I released the version of “The Reality of Freemium in SaaS” PDF and since then the “Freemium” landscape in SaaS has continued to evolve rapidly. Freemium use in B2B technology / software / SaaS / Web Apps / Cloud is rapidly evolving and I wanted to take note of where we are at today… where we’ll be tomorrow I can’t tell you, but I guarantee it will be different. Copyright© 2013 Lincoln Murphy. All Rights Reserved.
  • 3. Why do we need this list? I wanted to also call attention to the fact that the use of “Classical Freemium” – the idea of a free version of a premium product – is losing popularity as the go-to method for adopting Freemium, with other types of Freemium coming into play. This is with both pure-play startups and established companies moving to Freemium. I’ve made a list of the 7 different types of Freemium below, but this isn’t meant to be an exhaustive list… if you have other ideas, please share them in the comments. What I’ve tried to do here – more than anything – is indicate that there isn’t just one way of doing “Freemium” and maybe to a larger extent show the term “Freemium” is used even when there isn’t a clear Free > Premium path. Copyright© 2013 Lincoln Murphy. All Rights Reserved.
  • 4. The Hybrid Freemium Model Few companies will tell you they conform to any of these, which is great… they shouldn’t be trying to conform to these “types” but instead do what is best for their market, users, customers and their company. I even had a hard time deciding where to put certain companies – like Evernote and SolarWinds – because they don’t nicely fit in one “type”. But I don’t think that makes these “types” any less relevant. In fact, many of these “types” of Freemium aren’t exclusive within a single company. The most successful models use a hybrid approach, for instance using the Freeware 2.0 & Ecosystem models together. Copyright© 2013 Lincoln Murphy. All Rights Reserved.
  • 5. Presentation Source This presentation is based on my popular “There are 7 Types of Freemium and Why That Matters…” post... you can find a lot more detail on the techniques and ideas presented here: http://sixteenventures.com/seven-types-of-freemium The presentation continues ☞ Copyright© 2013 Lincoln Murphy. All Rights Reserved.
  • 6. Freemium Pyschology Pretty much, if there is a “free” component to a marketing strategy these days, it is called “Freemium.” Where most companies go wrong is when they confuse “Free Trials” with “Freemium.” If you think Freemium is just an extended “try before you buy”… you’re in for a serious rude awakening. There are MASSIVE psychological differences between “Free Trials” and “Freemium” that you need to understand. But for now, just understand what I am listing here are “Freemium” and not “Free Trials” and that confusing the two will cause massive issues and probably not give you the results you’re looking for. Copyright© 2013 Lincoln Murphy. All Rights Reserved. http://sixtenventures.com/
  • 7. Freemium Type 1: Traditional / Classical Free-forever feature-limited-but-usable version of a premium product The one that started it all The one that most people know The one with the major penny-gap issues Expectations that most users will never buy – by both the vendor AND user Examples: Expensify, LogMeIn Copyright© 2013 Lincoln Murphy. All Rights Reserved. http://sixtenventures.com/
  • 8. Freemium Type 2: Land & Expand Also called the bottom-up approach Free to acquire by users; Monetization at organization level Where the user & buyer are the same, the model uses a lock-in model to gain a foothold within an organization Expectation by vendor is after x % users in a company, they’ll pay Examples: Yammer (Acquired by Microsoft in 2012 or $1.2B), Dropbox, Box Copyright© 2013 Lincoln Murphy. All Rights Reserved. http://sixtenventures.com/
  • 9. Freemium Type 3: Unlimited “Free Trial” Not really a “Free Trial” – the vendor likely doesn’t understand the true dynamics of Freemium (which will likely come back to haunt them) Free-forever feature/usage/UX-crippled version of a premium product Expectations by vendor are that they user will convert/upgrade Expectations by user is continued-forever use for free This seems like a risky type of Freemium to adopt since it is mixing the elements of a Free Trial with the psychological aspects of Freemium. Examples: Echosign, Basecamp Copyright© 2013 Lincoln Murphy. All Rights Reserved. http://sixtenventures.com/
  • 10. Presentation Source Remember, this presentation is based on my popular “How to Develop your SaaS Pricing Model” post... you can find a lot more detail on the techniques and ideas presented here: http://sixteenventures.com/develop-pricing-strategy The presentation continues ☞ Copyright© 2013 Lincoln Murphy. All Rights Reserved.
  • 11. Freemium Type 4: Freeware 2.0 Free-forever, fully-functional product This is their main product or a completely new stand- alone product line within a larger organization No expectations of  conversion/cross-sell by MOST free users Monetization is through add-ons for the free product created by the company itself Examples: Evernote, Skype, AVG Copyright© 2013 Lincoln Murphy. All Rights Reserved. http://sixtenventures.com/
  • 12. Freemium Type 5: Alternative Product Strategy Similar to Freeware 2.0, but from a company with an existing premium product-line of which this is a discrete subset. A Free-forever product with no direct up-sell path to “premium” version Often used as a foot-in-the-door strategy Goal is to cross-sell other offerings from the company Examples: Autodesk’s SketchBook Pro for iPad, join.me (a product of LogMeIn), SolarWinds Copyright© 2013 Lincoln Murphy. All Rights Reserved. http://sixtenventures.com/
  • 13. Freemium Type 6: Ecosystem Free-forever base product Monetization occurs through revenue share with 3rd parties, like add-ons by 3rd party developers Examples: iTunes, Google Apps, many commercial open source vendors leverage this plus professional services for monetization Copyright© 2013 Lincoln Murphy. All Rights Reserved. http://sixtenventures.com/
  • 14. Freemium Type 7: Network Effect Monetize eyeballs, aggregate behavioral data, etc. This is the idea – to whom I cannot find original attribution – that if you aren’t paying for the product, then you ARE the product. Or you’re creating the product through your use of the system. Examples: Spiceworks, Google (advertising), Wave Accounting Copyright© 2013 Lincoln Murphy. All Rights Reserved. http://sixtenventures.com/
  • 15. Presentation Source Copyright© 2013 Lincoln Murphy. All Rights Reserved. Remember, this presentation is based on my popular “There are 7 Types of Freemium and Why That Matters…” post... you can find a lot more detail on the techniques and ideas presented here: http://sixteenventures.com/seven-types-of-freemium
  • 16. Thank You! Lincoln Murphy Sixteen Ventures lincoln@sixteenventures.com http://sixteenventures.com @lincolnmurphy Copyright© 2013 Lincoln Murphy. All Rights Reserved.

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