I was talking with a client recently about whether they should introduce a free version of their product to drive more users into the sales funnel. After throwing around some ideas, we decided it wasn’t a good or viable option, mostly because we didn’t think enough free users would migrate to the premium service.
It was an intriguing conversation given free is used so often by startups looking to attract users. Many of these startups don’t even have paid services, which makes them more projects (and please, please won’t someone, anyone acquire us!) than businesses.
To be honest, I’m not a big fan of startups using free.
Fundamentally, I believe that if you a product is any good and offers some value, consumers should pay for it – whether it’s a one-time shot or a monthly subscription. When a startup embraces free, it suggests they’re afraid their product doesn’t have enough value or their product isn’t good enough compared with the competition.
And freemium isn’t much better. Aside from companies such as Freshbooks and Dropbox, freemium is like dipping your toe in the water as opposed to jumping in with both feet.
Earlier this week, Josh Cohen had an excellent post looking at the “foibles of freemium”, and how it can be an expensive marketing proposition. Here’s how his thesis kicks off:
“[Freemium] can work wonderfully of course, but usually it crushes and destroys companies, not only because it costs more than anticipated but because the founders didn’t realize the business model itself caused them to make incorrect decisions.”
In many respects, freemium (and free) give startups false hope.
By offering people a free option, startups believe a wave of consumers will magically materialize, and that many of these freeloaders (5%, 10%, 15%??) will eventually be compelled to upgrade to the paid version. Of course, this is a dream given the low conversion rates – usually 1% to 2%.
Instead, startups should sell their products. If they want to offer a 14 or 30-day free trial, that’s great but, at some point, consumers need to pay or stop using the service.
Another reason I’ve been thinking about free recently has to do with Tempo, a smart calendar app for the iPhone. Simply put, I love using Tempo. It’s an intuitive, useful calendar that comes with features that make sense.
But here’s the thing: Tempo is free but I’d happily pay for it. Whether it was $5 for a download or $2/month, Tempo has more than enough value for me to cough up some of my hard-earned dollars.
I’m not sure about Tempo’s business plan or revenue model but it’s a perfect example of a startup that shouldn’t be afraid to charge. Yes, I know free is prevalent within the iOS world but not everyone has to give it away for nothing.
Given my approach toward free, it shouldn’t be surprising that I have started to buy more online products.
It’s not because I’m feeling particularly generous or feel that supporting startups financially is the right thing to do. It has more to do with the belief that good products are worth something and, as a result, paying for them should feel right because it’s a win-win proposition.
It could be that free and freemium are permanent parts of the digital landscape because consumer behaviour has been hard-coded. But it should not stop startups from embracing a pay-to-play approach.
If you charge for your product, what’s the worse that can happen? Not enough people may not buy it, which suggests your product isn’t valuable or good enough. If that’s the case, you can give it away for free or decide that maybe you’d be better off doing something else.