Why Free Plans Don’t Work • Hacker News Board

Re: Why Free Plans Don’t Work

#41

Post by revorad » Wed, Aug 18, 2010, 2:36 PM UTC

shadowsun7 wrote: post #26

I loved this article, but after thinking about it for a bit I realize that there is an argument for going free. Two pretty strong ones, in fact. 1) If you want to get acquired - and we're talking about a big acquisition here - it would do to go free so you manage to score a big-enough user base to get noticed. And so the bigger company is interested in acquiring you not only for your technology, but also for your use…

Going free also makes sense if you want total market dominance. In which case, free is really the only way to go.

No it's not. The other way is to make the best damn product in the market. I hate to give cliched examples, but since we are talking market dominance, see Windows, Adsense and iPod.

Re: Why Free Plans Don’t Work

#42

Post by dpcan » Wed, Aug 18, 2010, 2:40 PM UTC

shadowsun7 wrote: post #34

emanuer wrote: post #16

I was just thinking this about Evernote the other day. I really want to pay them. They make a great product that serves me very well. I do believe they deserve my money. The problem is, the payed plan would be a complete waste for me. I don't need it. The free thing fulfills my needs perfectly. If it would be a 30 days trial, I would be a happily paying customer by now. The same thing is true for dropbox for me. Afte…

RE: Dropbox - just wait till you run out of space. I love their product, and I'm currently not paying. But trust me - when I finally run out of space (and I will!) I'll do it, no questions asked. They're giving me so much value already that I can't imagine living without them.

True - and the exact reason why I'm a paying customer. I got down to my last 200MB and then I became a paying customer. I didn't even think twice about it.

Re: Why Free Plans Don’t Work

#43

Post by revorad » Wed, Aug 18, 2010, 2:46 PM UTC

bmcnamara82 wrote: post #33

michael_dorfman wrote: post #21

Earlier quoted context omitted.

Conversely, if you have an app that is going to get a really large user base, and I'm talking 'millions', then it probably will work (i.e. google, twitter, facebook, ect.) Actually, not. None of those are using a "freemium" model; they are all ad-based products. If your business model is dependent upon giving advertisers eyeballs, "free" is a great way to go-- but that has nothing to do with the topic at hand.

"Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base." From Fred Wilson's mouth (he coined the term "Freemium")

acquire a lot of customers very efficiently

First of all, people who don't pay are users, not customers. Secondly, how are conversion rates of less than 2% considered efficient?

In the freemium model, even if cost of customer acquisition (COCA) for a free "customer" can be considered to be zero, Life Time Value (LTV) is increasingly negative.

Re: Why Free Plans Don’t Work

#44

Post by arnorhs » Wed, Aug 18, 2010, 2:51 PM UTC

I would argue that in order for a free account to work you will have to meet the following criteria:

- The free account is only useful while you're starting to use it - so a real constraint has to be in place for you to want to upgrade.

- Your product has to be useful enough on it's own.

- Your product is not too niche. If the percentage of people on planet earth that can benefit from your product is low, then there will be less chance that a user finds somebody else to recommend the product to.

I haven't looked at Bidsketch, but if people are signing up for free and the free plan has enough constraints in place but people are still not upgrading, that could be a sign that people don't like the product enough or don't get enough value out of it.

Also, the article doesn't state what features the free plan had, but if the free plan used to be what is now "basic plan", maybe the free plan was too good ?

The website looks good btw.

edit: added a bullet point

Re: Why Free Plans Don’t Work

#45

Post by startuprules » Wed, Aug 18, 2010, 2:52 PM UTC

shadowsun7 wrote: post #26

I loved this article, but after thinking about it for a bit I realize that there is an argument for going free. Two pretty strong ones, in fact. 1) If you want to get acquired - and we're talking about a big acquisition here - it would do to go free so you manage to score a big-enough user base to get noticed. And so the bigger company is interested in acquiring you not only for your technology, but also for your use…

World of Warcraft dominates the MMORPG market. Why? they created the best damn product.

Go free to get lots of broke users if you want to help scammers serve ads to those users.

Re: Why Free Plans Don’t Work

#46

Post by revorad » Wed, Aug 18, 2010, 2:56 PM UTC

scrrr wrote: post #2

Yes, but would those companies have become popular if there hadn't been a free version in the beginning? Would as many invest in an unknown product in the beginning to eventually make it known?

Yes, but would those companies have become popular

You hit the nail on the head there. Web startups have become a popularity contest. Instead of building really good products and selling them for a price, people are trying to get as many users as possible and then tinker with all sorts of metrics to get "conversions". I can see the reason for doing this if you have big investors and want to sell to a big company one day. But, it seems like a really poor strategy if you want to build a profitable business.

Re: Why Free Plans Don’t Work

#47

Post by sstrudeau » Wed, Aug 18, 2010, 2:59 PM UTC

emanuer wrote: post #16

I was just thinking this about Evernote the other day. I really want to pay them. They make a great product that serves me very well. I do believe they deserve my money. The problem is, the payed plan would be a complete waste for me. I don't need it. The free thing fulfills my needs perfectly. If it would be a 30 days trial, I would be a happily paying customer by now. The same thing is true for dropbox for me. Afte…

Re: wanting to pay but not needing the "pro" version -- I feel the same way about Jing. I use it almost every day and I think TechSmith deserves my money, but I really don't need any of the features of Jing Pro.

Re: Why Free Plans Don’t Work

#48

Post by steveklabnik » Wed, Aug 18, 2010, 3:00 PM UTC

startuprules wrote: post #45

shadowsun7 wrote: post #26

I loved this article, but after thinking about it for a bit I realize that there is an argument for going free. Two pretty strong ones, in fact. 1) If you want to get acquired - and we're talking about a big acquisition here - it would do to go free so you manage to score a big-enough user base to get noticed. And so the bigger company is interested in acquiring you not only for your technology, but also for your use…

World of Warcraft dominates the MMORPG market. Why? they created the best damn product. Go free to get lots of broke users if you want to help scammers serve ads to those users.

WoW also offers a lot of free months to players. Sign up a friend, both of you get free months.

I almost said "and WoW isn't the best damn product," but that depends on your definition of 'best.' It almost mirrors the Mac/Windows thing. Connoisseurs tend to scoff their noses, yet they just keep on selling...

WoW is a mediocre product executed _perfectly_.

Re: Why Free Plans Don’t Work

#49

Post by krschultz » Wed, Aug 18, 2010, 3:04 PM UTC

Startups are too skiddish about charging. This shouldn't be novel or surprising, this is regular business 101.

Businesses charge money for useful products. People are used to paying for useful products.

The only difference is that the variable costs associated with hosting more users are tiny. How much does each user cost you? Basically nothing in the scheme of things. The problem is that the fixed costs are high - development, overhead, etc. Just becuase the variable costs are low doesn't mean you can't charge your users for the fixed costs.

Other businesses do this all the time. Startups should not be afraid of charging their fixed costs on to their customers. Advertising is fine if you are a media website and are trying to be an online newspaper or a website with no real function at all, but if you are a full fledged web app with useful features, CHARGE!

Re: Why Free Plans Don’t Work

#50

Post by arnorhs » Wed, Aug 18, 2010, 3:05 PM UTC

arnorhs wrote: post #44

I would argue that in order for a free account to work you will have to meet the following criteria: - The free account is only useful while you're starting to use it - so a real constraint has to be in place for you to want to upgrade. - Your product has to be useful enough on it's own. - Your product is not too niche. If the percentage of people on planet earth that can benefit from your product is low, then there…

You would also have to measure and account for over how much time the free users convert to paid users. If it happens over two years, you have to take that into account.

As the gigaom article mentions: The thing is, over time inactive users drop off, and active users start paying. Once Evernote finally figured that dynamic out and started talking about it, term sheets and partnerships requests started flowing in, Libin said.