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SaaS and the quest for freemium

Explains the key drivers for a Freemium software offering with measured examples of companies that have accomplished it. Such as Dropbox, EverNote, Freshbooks, and others.

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Software as a Services
       and the
 Quest for Freemium
     What it takes to be
 Sticky, Viral and Touchless
What makes Freemium work
• Free:
  Lower friction = faster traction
• Sticky:
  Grows more valuable the more its used.
• Viral:
  Ecstatic customers + Incentives to share with
  friends.
• Touchless:
  Guide users to become customers
For Freemium to work
  Low CAC High LTV




                       Source: David Skok, Matrix Partners
Why Free?
• It Optimizes spread,
• Creates large footprint,
• Fast decisions
  Examples:
  – Started with free = Freshbooks, Dropbox,
    Evernote.
  – Added Free = MailChimp



                                         Source: David Skok, Matrix Partners
When is Freemium a good fit?




                       Source Matt Brezina, Xobni
Free- Caveats
• Product is the salesperson
• So you have Absolutes:
  – Ease of set up
  – Ease of use
  – Clear instruction
  – Fast proof product works




                               Source: David Skok, Matrix Partners

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SaaS and the quest for freemium

  • 1. Software as a Services and the Quest for Freemium What it takes to be Sticky, Viral and Touchless
  • 2. What makes Freemium work • Free: Lower friction = faster traction • Sticky: Grows more valuable the more its used. • Viral: Ecstatic customers + Incentives to share with friends. • Touchless: Guide users to become customers
  • 3. For Freemium to work Low CAC High LTV Source: David Skok, Matrix Partners
  • 4. Why Free? • It Optimizes spread, • Creates large footprint, • Fast decisions Examples: – Started with free = Freshbooks, Dropbox, Evernote. – Added Free = MailChimp Source: David Skok, Matrix Partners
  • 5. When is Freemium a good fit? Source Matt Brezina, Xobni
  • 6. Free- Caveats • Product is the salesperson • So you have Absolutes: – Ease of set up – Ease of use – Clear instruction – Fast proof product works Source: David Skok, Matrix Partners
  • 7. Sticky • Create a product that has a great long-term retention rate; • Make something whose value increases over time; (Evernote) • Hang on to older users by introducing new features (Evernote, Xobni, GIST) Source: Phil Libin, EverNote
  • 8. Sticky- Example by Cohort : Evernote 35000 30000 25000 20000 # Users 15000 Convert % 10000 # Customers 5000 0 Month Month Month Month Month Month 1 Month 6 12 18 24 30 36 Oldest cohort now 20% paid Source: Phil Libin, EverNote
  • 9. Viral • Give users better tools to spread the love • Referral program w/ 2-sided incentive (paypal, dropbox) • Surveys, split tests, landing page/signup flow optimizations, encourage sharing  big wins • Big investment in analytics • Test, measure, repeat Source: Drew Houston, Dropbox
  • 10. Viral- Example DropBox DropBox User Growth 4500000 4000000 4,000,000 3500000 3000000 2500000 2000000 Est users 1500000 1000000 500000 100,000 0 Dropbox grew from 100,000 to 4,000,000 users in 15 month. Roughly 25% CAGR, Sustaining 17% CAGR over the last 9 Mo. Source: Drew Houston, Dropbox
  • 11. Touchless • Move customers from trial to purchase without needing a sales force. • Customers like to sell themselves • Use a simpler sub-set of your product/service, then upsell • Easier to upsell an existing customer (Evernote, 37signals, Dropbox, Xobni, Freshbo oks, ProOnGo, ConstantContact, etc)
  • 12. Higher LTV - Monitization • Recurring Revenue • Scalable pricing • Upsell • Product line extensions • Lead gen for 3rd parties (API-platform)
  • 13. A Working Freemium Business Model Source: David Skok, Matrix Partners
  • 14. Early Success Metrics • Visitor-to-trial conversion rate. it indicates if target audience is interested in the product and the ability to communicate the value of the product. • Trial-to-paying-account conversion rate. If people pay for product, that's the best sign that we're delivering real value to them. Higher conversion = lower CAC. • Engagement and retention of early users. look at usage metrics such as daily or weekly logins and various application- specific metrics to see if product is really used by customer. • Enthusiasm of your early users. These early VIP users are a strong signal that product is solving a real pain and hence a strong indicator of product/market fit (which is the basis for low CAC and high CLTV). • Team. Smart, dedicated, talented and results-driven. Excel at product. ”Get" modern SaaS –consumerized business applications that are powerful yet easy-to- use and can be sold online using a low-touch sales model. It’s in the DNA of the founder team. Source: Christoph Janz, Point 9 Ventures
  • 15. The Process: 5-Step Model - AARRR SEO Campaigns, Social SEM PR Contests Biz Networks Blogs Affiliate Dev Apps & s Direct, T Widgets Email el, TV Domains ACQUISITION Viral Loops Homepage / Emails & Landing Page widgets Emails & Alerts Product Affiliates, C Features ontests Blogs, RSS, Ne ws Feeds System Events & Ads, Lead Biz Dev Time-based Features Gen, Subscriptio ns, ECommerce Website.com Source: David McClure, 500Hats
  • 16. Sample Conversion Metrics Stage Conversion Status Conv. Est. Value % (*not* cost) Acquisition Visitors -> Site/Widget/Landing Page 60% $.05 (2+ pages, 10+ sec, 1+ clicks = don’t abandon) Activation “Happy” 1st Visit; Usage/Signup 15% $.25 (clicks/time/pages, email/profile reg, feature usage) Retention Users Come Back; Multiple Visits 5% $1 (1-3x visits/mo; email/feed open rate / CTR) Referral Users Refer Others 1% $5 (cust sat >=8; viral K factor > 1; ) Revenue Users Pay / Generate $$$ 2% $50 (first txn, break-even, target profitability) Source: David McClure, 500Hats
  • 17. Step 1: Acquisition Users come to the site/app from various channels: • Affiliate – Develop affiliate program, create rewards scheme – Identify target affiliates • Apps & Widgets – Create widget to embed in other websites, facebook, outlook, email – Build API for others to build on top of, encourage open development, create revenue sharing model • Biz Dev – Identify and calling/networking with target industries e.g. Jones Lang – Channel partnerships • Blog – Create original blog content – Share useful content relevant to target users e.g. Hubspot – Create video sand podcasts – Share features e.g. wibiya, facebook like, twitter tweet, google +1, linkedin share, stumble upon, • Campaigns & Contests – Running online contests, giving away gifts – Hackathons and local events – Going to tech events • Advertising – TV, Radio, Print – Online paid adverting e.g. Google Adwords, Facebook Ads, industry, online publications
  • 18. Step 1: Acquisition Contd… Users come to the site/app from various channels: • Domains – Registers multiple domains focused on specific elements • Email – Obtain targeted email lists, send out emails – Pay email marketing firms e.g. constantcontact • PR – Press releases – Placement on sites like Yahoo News, Google News – Mentions on tech websites e.g. techcrunch, mashable, gigaom – Communication and relationship with journalists – Communication and relationships with tech bloggers, magazine writers, – Develop a PR package to download – Paid PR • SEM & SEO – Find most relevant and popular terms and embed in website – Get linked/mentioned on other websites – Create backend tools e.g. web analytics, log file analyzing • Social Networks – Facebook, twitter, google plus pages Metrics to Track by source: – Youtube - Quantity(#) – Startup blogs and networks e.g. builtinchicago.org - Cost ($) – Tapping into MBA network - Conversion (%)
  • 19. Step 2: Activation Users enjoy 1st visit i.e. “happy” experience • Homepage/Landing Page – Conduct A/B testing of UI, impact of various of colors, placements and UI – Track page views, clicks, time spent on site – Keep page clean and simple – Set activation goal e.g. get emails • Product Features – Test success of different product features – Iterate fast – Provide incentives and encourage call to action Metrics to Track by source: - Pages per visit - Time on site - Conversion (%)
  • 20. Step 3: Retention Users comeback to visit site multiple times: • Emails & Alerts – Lifecycle emails e.g. 3 day, 1 week, 1 month – Status emails e.g. best of week/month – Event based emails “something happened” – Easy to unsubscribe – Easy to read emails (Important info in subject, small body) • Blogs, News Feeds, Twitter Feeds – Track Impressions – Track commentary • System Events & Time-based Features – Release features with maturity /demand of customers – Release features around events Metrics to Track: • Cohort Analysis - Source – Conduct cohort analysis - Quantity (dist. of visits over time, rate of delay, customer lifecycle)- Conversions - Visitor Loyalty - Session Length
  • 21. Step 4: Referral Users like product enough to refer others: • Viral Loops – Create incentive for sharing e.g. rewards – Create same-side networking effect so users benefit from inviting others – Make sharing easy – Track viral growth(Growth factor = X*Y*Z where X = % of users who invite others, y = avg number of people invited, Z = % users who accepted invitation). Track growth of different channels • Emails, Widgets & Social – Make it easy for users to invite others from app/web – Penetrate a specific customer segment with widgets – Build API for others to build on top of, encourage open development • Affiliates, Contests – Ads, Affiliates, Cross-promote app with other developers
  • 22. Step 5: Revenues Users conduct some monetization behavior: • Revenue – Freemium Model – figure out optimal model, price – Subscription/Recurring Transactions – Create API for other developments, profit sharing – Track profitability: Lifetime value > Cost per acquisition + Cost of service (paying & free) – Build profitability model • Biz Dev – Create channel partnerships – Form alliances versus competing – Target tech savvy users/early adopters initially – Target industries and functions
  • 23. Thanks  • Want more info? – Kelly Schwedland – 219-405-5723 – kellys@abdus.com • Sections of slidedeck taken from: Dave Mcclure’s http://slideshare.net/dmc500hats 500.co (@DaveMcClure) David Skok http://www.slideshare.net/DavidSkok http://www.forentrepreneurs.com/ (@BostonVC)