On an opinion piece on Forbes.com, “education and PR” company MindRocket CEO Rod Berger almost seems to wonder if the Freemium model was ever successful, for anyone.
A common practice in the introduction of new software and applications, a Freemium model involves the development of two versions or categories for a product. A free, stripped-down version in terms of features or support, and a premium tier with features greater, wider, or both.
Freemium is “one of the very popular strategies” in EdTech, Berger claims. Freemium’s dream scenario occurs when a “school district [gets] dependent” on a light version of their product and gets a “fat contract based on an upgraded version that includes reporting and analytics“. He warns that this scenario is “flawed”, not realistic and can “bankrupt a start-up“.
Beyond school districts, or any educational organization, the advantages of a free EdTech product are offset by the lack of support and compatibility, and the unsettling failure rates of young entrepreneurs. Freemium risks reliance on short-lived products with bugs that will never be fixed and data that will never be recuperated.
You get what you don’t pay for
To be sure, nobody can prove freemium has not or will never work. But there are recurring risks, pitfalls and circumstances in the marketplace that have been seeping doubt into the model, some of them suggested by Berger. Most are caused by the ill-conceived notion that freemium and premium tiers target different consumers. In reality, a necessary, not sufficient condition, for freemium to work, is that ‘free’ is acting as a gateway towards ‘paid’. Finally, free is not always freemium. A company offering a free tier as a social statement ―such as MoodleCloud, debatably―, without strings attached or expectations, there is no freemium model to speak of.
Free and premium tiers are too different. Arguably, freemium’s main selling point is to show a glimpse of the full-fledged service. This fundamental aspect is too often lost on entrepreneurs, who devise a free version too lacking in features or too feeble as user experience. Even if they manage to keep prospective premium costumers from associating the displeasures of the basic deal with the whole product or brand, in this case freemium fails to help customers understand what the product is really about.
Free and premium tiers are too alike. As a results, few users choose to make the jump to paying customers. This situation is not bad in itself, as it could be part of an “entry strategy” that encourages word-of-mouth and consequent market penetration. But if the two tiers are not sufficiently different, nor part of a bigger picture, the resulting cash burn rate could be too much to bear.
Freemium compromises brands. For startups excessively focused on growth, at the expense of short-term revenue, the temptation of free for instant and massive adoption can be too seductive. But if a product grows too much in too little time, or fails to take off, the resulting hitches become associated with the brand. Freemium leaves companies open to be questioned as to why they allow their name on “lesser” products.
Freemium is useless for procurement departments. Freemium does not fare well when the user and the maker of the purchasing decision are different people. Large buyers, or those who must procure an organization, consortium or district with years in advance, need to know the full extent of the value proposition before deciding on moving forward with the purchase. Freemium is not a replacement for dedicated enterprise sales forces.
Freemium enables “digital Tarzans”. The saturation of too similar games in the Android apps marketplace, using freemium models, is encouraging an unsustainable race of increased and enhanced features, placing strains on the bottom line too hard to overcome without healthy levels of working capital, that is, for most. Furthermore, when players reach a limit on an app, they swing on to the next vine. A similar situation could be developing in Moodle’s “marketplace” of plugins, if more of them had profit aspirations.
Freemium doubles the amount of work. Many developers would wish the “build it and they come” was as straightforward in real life as it sound. That way, all the company’s brainthrust would focus exclusively on making the product better. Admittedly, most business models need to address non-core issues regularly. This is a warning against freemium programs set in motion without clear cost\benefit analyses.
Freemium just does not fare well against other business models, in some cases. If you are looking to expose your product’s best and iconic features, a time trial or a demo might be more sensible models. If your product does not stand to profit from network effects, the viral growth potential freemium products are susceptible to will not translate to the bottom line.