Freemiums are often the content of choice today for company’s seeking to advance their customers through their social sales funnel. But do they help more than they hurt revenue generation?
With an estimated 90% to 99% of the 1 million apps downloadable free of charge, consumers are quite accustomed to receiving free services. So businesses see this as a content marketing strategy for the bottom of the sales funnel (i.e., BoFu content). The intent here is to engage customers through trial use of a business solution that allows service providers to showcase their competence while getting sales ready prospects to consider an offer.
In the mobile app business, freemiums are generally applied in the following manner:
- Feature limited – start with a reasonable set of functions
- Time limited – free trial typically of entire feature set that expires over a 30 day time period.
- Capacity or subscription limited – free offering applies to a limited set of subscribers
Freemiums have been employed very successfully in social networking arenas. Popular examples include Skype, Hoovers, LinkedIn, Dropbox and most email service offerings. Proponents of the freemium model suggest that providers of apps and other digital offerings deliver a base set of services free of charge in order to reach high internet traffic. A fee is then charged for specialized services or future activation of paid service (e.g., time limited trial subscription).
Example of Freemium-to-Premium Mobile App
Trial use apps, along with free audits and assessments, are widely used in BoFu content strategies where users need a free look before purchase. During this trial period, suppliers can collect significant research information in a social CRM data base.
In total freemiums offer the following benefits:
- Rapid customer acquisition (click away) – If you can convert trial users without forcing them into a purchase decision, you can build a customer base fairly rapidly and efficiently. Some research supports the notion of simplicity in purchase. i.e., Users are adverse to pulling out credit cards or even completing registration forms. It is therefore suggested that these actions be deferred until after initial interaction.
- Promotional tool with reduced marketing expenses - The freemium model can be an especially effective promotional tool online because customers easily spread the word throughout social media outlets. When offered free of charge, the free product can be easily recommended to friends via Facebook, blogs, LinkedIn, Twitter and industry forums. Moreover, if the download link goes viral, marketing expenses are drastically reduced.
- Validation of business model – Freemiums provide opportunities to prove market potential for a company’s offering as well as to prototype the offering for product research.
- Search engine effectiveness – Freemiums provide far more valuable and popular blogging content as users link to the site hosting the free download. Consequently, more opportunities are provided to bump up search engine results (e.g., through fresh content and greater audience reach). In addition, research shows terms like “free” to significantly boost the effectiveness of PPC ads as well.
- User confidence – Much like a money back guarantee, a giveaway is often perceived as an expression of confidence on the part of the service provider. i.e., By offering a freemium, a company is essentially expressing its confidence in product effectiveness while imparting some goodwill to its sales ready audience. In effect, the introductory price is a signaling mechanism. A low entrance price signals that you are confident that your product will create value for the customer.
- Overcoming customer reluctance for untested experience goods – Many digital products or services need a period of use before the customer can determine its usage value. Since customers tend to underestimate the value of a product, the optimal pricing for an untested experience should include a low introductory price which is then increased when the customer realizes the full value of the product.
- Tiered pricing rationale – Freemiums also provide a rationale for premium offerings. For example, if priced by the number of shared app users or the number of activated features, users have a baseline in which to justify pricing from the most basic to enterprise-level platinum support.
- Valuable research - Freemiums allow early research of a product’s or service’s feature demand. And by tracking downloads from their source, information can also be gathered about target audience characteristics as well. Finally, freemiums are normally provided at the bottom of the sales funnel. As a result, the downloading of a free app provides a trail of conversion data often missing from middle of funnel content (e.g., blogs, eBooks, Podcasts, webinars, etc.).
But despite their growing popularity, freemiums typically suffer from the following:
- Slow time to monetize – The conversion from free to paying customers can take months to years for freemiums to be profitable. Statistics show that paid adopters typically range from 1% to 10% of total app downloads. This would imply that a freemium model often hinges on an aggressive up-sell of feature upgrades or user base expansion.
- Competitor imitation – The more viral a freemium offer spreads, the more exposure it has to competitive scrutiny.
- Psychological perception of perpetually free – Free is a huge accelerator of adoption. The flip side of this is that after using the product for free, it is very hard to get the customer to start paying for it.
So how do you stand on freemiums? Will they continue to grow in popularity? Which of the three most commonly administered formats show the most promise (e.g., feature limited, time limited and capacity limited freemiums)?