This document discusses the freemium business model and provides advice for companies considering it. Freemium relies on the irrational behavior created by offering products or services for free. It works best for solutions targeting large markets where marginal costs are low and the product is highly engaging. The document outlines best practices for streamlining signups, driving conversion, marketing effectively, controlling costs and metrics. It analyzes case studies of companies that succeeded or struggled with freemium implementations. Overall, it argues freemium can be effective when properly executed for the right type of product or service.

1. Adventures
in Freemium
Navin S. Ganeshan
March 13, 2013

2. Get
a
ta&oo
for
one
year
of
free
movies?
18
people
did…

3. Lindt
Hershey
They
Chose
$0.20
$0.05
76%
Lindt
$0.15
$0.01
73%
Lindt
$0.14
$0.00
14%
Lindt
The
Penny
Gap
-­‐
Lindt
Truffles
vs
Hershey
Kisses

4. “Free” is a special price – creates non-linear demand &
drives irrational purchasing behavior
“Making money around free will be the future of business” – Chris
Anderson

5. Freemium is one of many ways to
capitalize on free
Free Messaging Free Components
Free Trial Freemium

6. Freemium
is
about….
capitalizing
on
the
inherent
sFckiness
of
your
product
…not
just
behavioral
manipulaFon

7. Is Freemium Right For You?
Broad Solution,
No
Big market?
Paid or Yes
Freemium
Free-Trial (See execution)
Low marginal
No
cost?
Yes
Work on product
and come back
Does your
when you’re ready No
product rock? Yes

8. Executing Freemium
1. Streamlining Signups
2. Compelling Conversion
3. Meaningful Marketing
4. Controlling Costs
5. Managing to Metrics

9. Streamlining Signups
Invest Early in Organic Find Channels that can free
Search qualified users
(Freemium can’t support paid search) (“psst..want to give away a free product?”)
Referrals/incentives
(leverage network effect)

10. Compelling Conversion
Ideal conversion drivers are those that occur naturally with
increased consumer investment and value delivered
Good
• Usage-­‐Based
• Feature-­‐Based
CreaNve
• Component-­‐Based
• Ad-­‐Removal
• Service/Support
• Mobile
Bad
• Humor/Goodwill?
• Time-­‐Based
(not
Freemium!)
• Views
or
Paywalls
(#%@$)

11. CreaFve!

12. Meaningful Marketing
Build a communication plan – a matrix of…
• Who – target users
• When – times/triggers
• What – message, content
(but you already knew this….)

13. Controlling Costs
Service/support Overuse/Abuse
Rely on email/self-service Monitor, monitor, monitor
Help users help other users Use the big-stick – service-
agreement

14. Managing to Metrics
Metric Explanation Acquisition
Visitors to Users
Acquisition cost Marketing/Advertising cost per signup 2%
varies
widely
Effective Marketing/Advertising cost per
Acquisition cost paying customer
Lifetime Value/ Customer Lifetime Value (e.g. Avg
Conversion
Tenure X Price) Users To Customers
PV 1-­‐3%
Daily signups Number of signups per day
Conversion rate Percent of free users who convert to
paid
Lifecycle
>90%
Retention & Churn
retenNon
“Free” Product, Support costs per Free user
Operating Costs
Terminology may vary
Your mileage WILL vary

15. Case Study #1
Switched from Freemium to
Free Trial in 2010
Before
300K Free sites, 15K Paid
6% Conversion
After
35K paid sites after switch, grew to
over 200K by 2012
Learnings
Out of Control Free-Loader Costs

16. Case Study #2
Poster-child for Freemium
50M Users
4% Conversion
When They Started
SEM didn’t work – $338 CPA for a $99
product – fail!
What Did Work
Stopped search marketing
Referral programs increased signups by 60%,
Now 35% of daily signups from referral
Learnings
Search marketing did not work because
demand did not exist. Referrals/WOM drove
awareness, created demand.

17. Case Study #3
Freemium Failure…and recovery
Their initial Freemium model
Free for low-usage – under 50tx/mo
Almost went bankrupt in 1 year
What Did Work
Paid model for all but test-levels
Went from 25 to 225 cX/month YoY
Learnings
Conversion triggers not matched to customer
profile – too many users were subsisting in the
free tier with no natural trigger

18. Case Study #4
An IDEAL Freemium Story
34M Users, 1.5M paying
4-6% Conversion
No social/network advantage
Purely driven by product quality
and WOM
Unique aspect – negative churn as
usage increases after first year –
“The Smile Graph”

19. So…are you ready?
q Qualifiers – is it right for you?
q Broad Solution / Big Market ?
q Rockin’ product?
q Low Marginal Cost?
q Execution – what’s your plan?
q Streamlining Signups
q Compelling Conversion
q Meaningful Marketing
q Controlling Costs
q Managing to Metrics

20. Interesting Case Studies
Experimented
with
Free
Great
case
study
on
Trial
w/out
CCard
virality
and
sFckiness
Moved
from
Freemium
Moved
from
Freemium
to
Free
trial
to
Free
Trial
Moved
from
Free
Trial
to
Freemium
Good
learnings
on
sFckiness
and
cost-­‐
control
in
Freemium
Good Reads
Predictably
IrraNonal
Free
The
hidden
forces
that
shape
our
The
future
of
a
radical
price
decisions
Chris
Anderson
Dan
Ariely

21. Good Luck!
Navin Ganeshan
March 15, 2013
nganeshan@gmail.com
@NGaneshan