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Why Freemium Doesn't Work
itwbennett writes "Tyler Nichols learned an obvious but important lesson with his freemium Letter from Santa site: 'most people who want something for free will never, ever think of paying you, no matter how valuable they find your service.' He also discovered that non-paying customers are more demanding than paying customers, which only stands to reason: If someone likes your service enough to pay for it, they probably have an affinity for your brand and will be kinder."
So 1 site gets it wrong, and the whole model is broken ?
I think not !!
No no no, the major companies making millions of dollars on Free2play games don't count. One guy with 100k customers offering shitty PDF downloads of something anyone could make for free with with basic knowledge of Microsoft Word didn't make as much money as he wanted and had to answer hundreds of emails, so therefor freemium is dead.
Even worse, Tyler Nichols contradicts his own argument. If you read through the comments on his blog you find that he eventually admits that nearly 100% of his paying customers tried the free version before paying, thus the first part of his premise is wrong. Most people who tried the free service didn't pay him, but enough did that he was considering keeping the site going as a pay only site. So his evidence contradicts his premise that freemium doesn't work. Instead he presents evidence that some businessmen are so wrapped up in their own indignation that they can't recognize a business model that's actually working as intended for them.
His biggest problem seems to be that his unsolicited marketing email was marked as spam (because it is spam). The best solution to that problem is either to accept that the free people may not even remember your site a month after they use it and expect some of them to flag it as spam, or to only send email to people who upgraded to the paid version. They're the people most likely to pay for his related easter site, anyway.
Fanatically anti-fanatical
While he makes some interesting points, I think he misunderstands the spam issue, and why his users, especially free users, rightly marked his mail as "spam":
If I look at spam I get, some of it is "random" spam. E.g., someone I never heard of trying to sell me viagra, or asking me to help smuggle $10,000,000 he stole while being the president of his country. But a growing percentage of the spam are people who confused a one-time business relationship with my desire to read all about them and their products for the next 20 years. E.g., I'm constantly getting mails from a particular hotel I once stayed at, mails from some company I once bought from, etc. People *hate* that, and it doesn't really help that they once used your services - they still hate the spam.
But why did free users complain more? That's easy: Every paying user remembered you and your service, and most of them "forgave" the one time "thank you mail" (but be warned, they won't so easily forgive repeated annoyances). From the free users, a lot of them probably don't even remember what service you provided them. Heck, it is possible that half of them never even fully used (e.g., didn't even complete a card) or didn't enjoy your service, and you don't know that. These people have no recollection who you are, and thought that even a "thank you" letter was an outright spam.
What should you do about the spam thing next time? Don't make the "I want to get mails" checkbox hidden in some long form and default to on. You have two options - either make it default to "off" (so only people who REALLY want to get your mails will get them, but be warned that few people will actually want that), or, if you want it to default to "on" make a very very clear screen which basically says "I'm giving you this service for free, in exchange for the right to mail you in the future. If you do not agree, or would consider such mails to be spam, please do not use this service.".
He didn't even say he didn't make enough money... in his comments section, he points out that most of his paying customers were free users first. That to me means freemium works, even for him.
His biggest complaint about his whole experiment seems to be that his "free" users marked his mail as spam. However, one thing stands out: to use his site/service, you have to agree to a TOS, in which he mentions that he might send you mails. There is no opt-out button. That's worse than a sneaky default spam mail with a well-hidden opt-out checkbox... in his case, there is no such checkbox. You want to use his service? Then you agree to his spam. To me that means his service is not free, but hey, maybe I value my privacy more than a letter to Santa.
I understand he put hours and money into creating and hosting his site, but that does not entitle him to believe his mail is important, especially when there is no option to opt-out in the first place... and the fact most of his paying customers were free users first points to the fact he's just whining for whining, and doesn't understand what "freemium" means.