During dot-com, when it didn’t matter if a startup actually had a business model, an idea that had tons of street credibility was “freemium”.
Coined by Jarid Lukin, and propagated by Fred Wilson, freemium was seed as a solid business model because companies charged for advanced features albeit they offered basic services free of charge. The model has supported the notion that if you gave the consumer a taste, they’d happily buy more.
The problem is freemium doesn’t work for the overwhelming majority of companies, especially ones focused on the buyer market. In theory, it sounds good but in practice, few people actually buy more features. Sure, there are exceptions to the rule but those are few and much between.
Freemium is flawed because most people don’t need more features than what they will use for free of charge. Poll Daddy, which was acquired by Automattic earlier in the week, maybe a great example. If you’re willing to measure without customer support and a couple of small wrinkles, you’ll create as many polls and surveys as you wish. If you want the features and more survey responses (>1000/month), there are two premium packages: $200 and $899/year. For many people, a premium package makes no sense.
Freemium, another example to show how people appeared to forget business fundamentals during the wackiness of Web 2.0. At the time, it appeared like an excellent idea but freemium probably ranks alongside “eyeballs” so far another flavor of online Kool-Aid that everybody happily drank stupidly an excessive amount of about it.
If there’s an edge for freemium, it’s the company market where customers are willing to buy high-quality services also as customer support. This is often why companies like 37Signals and Freshbooks have thrived because enough customers want quite freemium services.
For consumer-focused companies, however, freemium is fool’s gold…and, most vital, it’s not a business model to make a viable and vibrant company.
As well, Steve Hodson (aka “the cranky old fart”) had a post a couple of months ago asking “Is Freemium the thanks to Go?” with this conclusion: “As idealistic, the freemium model may appear it’s not going to be the simplest account any of the parties involved – whether they be the start-up or not, the advertisers or the users.”