Once Again, Freemium Often Isn't A Good Model, But That Doesn't Mean 'Free' Doesn't Work
from the thinking-through-business-models dept
Since we talk a lot about the use of “free” in business models, it’s common for people to assume that we love any and all business models that use “free.” In particular, one assumption is that we think all “freemium” business models are great. However, that’s simply not the case. What we’re talking about here is how and when to use free in a business model. The important thing to recognize there is that when we’re talking about free, it’s in trying to figure out where it makes sense in the business model — not to say that “everything should be free” or that “any business model that uses free is great.” Yet, often, people seem to assume that we think any business model that has “free” is wonderful. The unfortunate result of this is that any time someone uses free as a part of a business model and it’s not effective, people think they’ve “debunked” what we have to say.
For example, last year, we wrote up a post explaining why so-called “freemium” business models probably are not a good idea for many software startups. There are some it can work for (and work really well, as Evernote continues to show), but it really doesn’t make much sense for a lot of others. That focused on a link from a software startup founder who found that freemium didn’t work for him. There’s now a similar post from the creator of the popular Instapaper app, talking about why he’s pulled the free mobile version of Instapaper, hitting on many of the same points that we raised with the initial post about why Freemium just isn’t right for certain businesses (especially software). The only reason I saw this was because Dave Harper pointed us to it, suggesting that it might debunk some of our positions — though Dave was very cool about realizing the difference once I pointed him to our earlier post.
However, I really think it’s important to highlight this particular issue, because it’s one that comes up a lot: when talking about the importance of free as a part of a business model, that does not mean that all “free”-based business models work, or are even good ideas at all. What’s important is to recognize when and where free makes sense and where it doesn’t. “Freemium” business models for software can be tough, though it very much depends on the specific software and service being offered. It’s very difficult to figure out what should be free and what should be premium, and quite frequently people underestimate just how few of the free users will ever switch over.
But none of that means that all free business models (or even all freemium) business models don’t make sense. We’ve always tried to drive home the idea that there are no cookie cutter business models in the digital world, and it’s important to understand the underlying economics to better understand where free might fit as a smart piece of your business model.
I think the worst thing about the focus on things like “freemium,” or even the intense focus on the word “free” itself, is that it often leads to cases where people can’t get past the “free” part, and when the larger business model fails, they blame the “free” part, rather than recognize that perhaps it was the way “free” was used as a part of the business model that was the problem.