For all the talk about the freemium business model, the key issue is how consumers can be convinced to upgrade from free to paid. For many companies, the free-to-paid gap is enormous because consumers are so enthralled with free that paying for an online service is difficult to justify, even if the service is useful and valuable.
Among the freemium advocates, their optimism is based on the belief the model can work because lots of users can be attracted to a free service, and that only a small percentage – 5% to 10% – need to upgrade to a paid service. Of course, this is easier said than done because 5% seems like such a small number, it should be do-able if the service is any good.
The problem is the vast majority consumers find that free meets all of their needs, so premium is an unnecessary move. This leaves a company with lots of users completely content to pay nothing forever.
So, how do companies bridge the gap between free and paid? How do they provide a great service that still leaves room for consumers to justify eventually paying for something more. The reality is there’s no easy answer, which is why freemium is just as much art as science.
I started thinking about freemium after upgrading to Dropbox Pro 50. The free service was terrific but having only 2GB of capacity quickly became unworkable after Dropbox became a key way to do business with clients and partners. There was simply no work to continue using the free version of Dropbox, which made it easy to upgrade to the 50GB package for $99/year.
To be honest, it was a decision that didn’t happen right away. My immediate response to hitting the 2GB capacity limit was to delete unnecessary files and folders. Of course, this was like to trying to stop in a leak in a dyke with a band-aid so I finally sucked it up and did the right thing by upgrading.
In hindsight, it was a no-brainer decision because ROI on paying $10/month for a premium service will be high. In the scheme of things, it’s a small line item within the ME Consulting empire.
It is interesting, however, that I had to think about it before pulling the trigger. In some respects, this epitomizes the freemium dilemma. Even when it’s completely obvious that upgrading to a premium service has to happen, it doesn’t automatically happen.
