Before blindly adopting freemium as the default pricing for your app, think long and hard about this:
Freemium has a longer sales cycle than enterprise.
Convincing someone to switch from paying $0 and $1 is hard, much harder than $1 to $10. If there's not enough value in the paid version, why switch? Finding that killer feature that will cause people to pay without chasing off the free users is hard.
For example, I run a data visualisation SaaS app. For a long time, I tried all sorts of combinations of free and premium, but no one was upgrading. When I spoke to my users, the most serious ones kept saying they would be happy pay for the free version itself because it solves a big problem for them.
I ignored them because how could I have any pricing model other than freemium, right? But, I kept getting the same feedback consistently.
And then it hit me - the most successful freemium companies give away the most valuable core part of their product for free.
Once they've got people hooked, they can sell premium services so that their users can get even more of the core value.
For example, the value of Dropbox is not lots of disk space. It's the hassle-free file sync, backups and easy file sharing with friends and family. 2GB is more than enough for most. But you can pay a bit to buy more space to get even more of those core benefits.
You pay for something mundane to get more of the priceless.
But, like I said in the other comment, the catch is that you have to have deep pockets to survive long enough to get to critical mass. Some people may get lucky and bootstrap a freemium business quickly, but the odds are low.
And that's why I settled on doing away with freemium and just straight selling a product with obvious value to a good number of people.
I am, however, thinking of dropping the freemium model. Not because it wasn't successful, but because now that Scribophile has an established reputation, requiring an up-front payment would help keep out trolls or members who aren't interested in participating. The idea is to improve the quality of the community, not take a dive into my swimming pool full of gold coins. But I'm still pondering if that's the right decision.
> If they find your service truly useful, they'll pay without question.
If they find your free service truly useful and it meets all their needs, why would they give you money?
This will shape them psychologically to be ok with the lesser free version in most cases.
Freemium does work, but not just because it gives users an opportunity to try something out with no risk. So do free trials. Very very few companies actually do freemium right, and would stand to benefit from a free trial instead (which doesn't have the same psychological implications that a truly free plan has)
One of the problems with the freemium model is that many people sometimes seem to pick a revenue target arbitrarily and then backfill their projections with the necessary conversion rate. Obviously, few firms or entrepreneurs want to expose their pricing models publicly in forums like HN, but startups need to be able to answer the question of what marginal utility they provide to their potential customers. The 'less than a cup of coffee!' model of app pricing, for example, assumes that since coffee is such a small thing users will be just as willing to throw down $3 for an app. But the coffee has physical, psychological and social value for the consumer that pays off on a predictable time horizon - and pays off not just the $3, but the time spent standing in line or buying and brewing your own coffee. Consumer preferences in for this commodity are sufficiently complex to support a large and extremely competitive market. If it was 'just coffee' then it would cost the same everywhere and vendors would be limited to normal rather than economic profits. A better approach for vendors might be to assume your target consumer does not have endless disposable income. What value does your product or service provide that would make a coffee consumer go without their favorite beverage for a day? Or if not coffee, a competitor's offering or some other part of the consumer's status quo? How does your offering compare to the composite bundle?
Sometimes, free users are actually hurting (they will write bad reviews, send hate email and write hate posts saying that "I don't want to pay", etc.)
For example, 37signals Basecamp does not have free tier any more. It would be great to hear from them why they decided to remove it and data behind their decision.
Some are going to stick with free forever as long as it fills their needs. However, some are going to use it so much that, if the price point is right, the upgrade is a no-brainer.
I have now an idea how to keep the service free for ever and charge only for certain things.
If anything I think both YC and TS just reflect the wider market with some extra noise and ideally better outcomes.
