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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."
... seems to contradict his argument. The game is free to play but there are aspects of the game that are enhanced if you pay.
The article raises "freemium" in a wider business sense, but I suspect that a lot of slashdotters will be used to coming across it in discussions of massively multiplayer online games.
I'm a long-term pay-to-play MMO gamer (Final Fantasy XI, World of Warcraft and now giving The Old Republic a whirl - just made a fairly long post about my experiences with it in my journal). I've also given some of the new generation of "freemium", "free to play" or "pay to win" (pick your favorite term) MMOs a go. However, I couldn't stick with any of them for long - from my point of view, this model provides a much inferior player experience.
It's not just about the money - though that is an issue. With a subscription based MMO, I know how much money will be going out the door on the game every month. So I pay my $15, have that as a line in my personal budget, and that's it. On a sheer time/cost ratio, MMOs tend to come out extremely well. With a Freemium MMO, I may end up telling myself that I'm going to spend a certain amount each month, but I also know that if I get stuck or frustrated, there's going to be a strong temptation to go beyond that.
But the really key point in TFA is "non-paying customers are more demanding than paying customers". That may be true from the service-provider's point of view. But it also has implications in the MMO world for the player. A subscription model game requires a degree of buy-in and committment from its player base. The other players you meet all want to be there and are paying for the privilege - and aren't, except in extreme circumstances, going to do anything to jeopardise that. The result, in my experience at least, is that levels of vulgarity, abuse and griefing - as well as outright cheating - are much lower in traditional subs-based MMOs than in the Freemiums.
So 1 site gets it wrong, and the whole model is broken ?
I think not !!
Seriously.
I can think of examples where Freemium works (EVE, JIRA).
I am very small, utmostly microscopic.
Let's not be stingy here. I second the contention that non-paying users are forthcoming with questions and reports, but I won't call them demands. The education tools (http://www.glean.org - mainly information literacy-related) we provide serve a number of schools, and some sites have heavy user traffic. All are free, but we do try to ask for donations to support our (nonprofit, 501c3) work.
And, when the sites glitch - or don't function properly, or as expected - those same users let us know about it. Quickly!
While few are likely to donate money to support our work, many are involved in bug reporting, formative evaluation and the testing of new education tools that we're launching. It's these kindnesses - in-kind support, you might say - that has been so valuable in helping us move forward.
At the end of the day, it's not cash - which is needed to move the organization forward. And, yes, our free users do have expectations - not unreasonable, as they rely on our services as well, and that the site has likely set some expectations about the service(s) that will be provided.
Of course, the lack of cash can be frustrating. However, I suggest against labeling, or reading, their expectations as demands. Instead, it's more helpful to understand how the audience is willing to help, and if/what can be done (in the case of TFA) to turn the free user base into paying customers.
Cheers,
--Dave
From Forbes magazine's Nov 2011 edition; emphasis mine:
[Dropbox] has solved the “freemium” riddle, with revenue on track to hit $240 million in 2011 despite the fact that 96% of those users pay nothing. With only 70 staffers, mostly engineers, Dropbox grosses nearly three times more per employee than even the darling of business models, Google. [CEO Drew Houston] claims it’s already profitable.
After reading the article, the only "evidence" that the Freemium model does not work is that free users that got his "thank you" email flagged him spam. I bet he also attempted an upselling on that thank you email. People that get stuff for free tend to be very picky about getting emails even reminding them they can get a paid version.
Anyways, what he described is not even "fremium"; it’s a free edition of the site and a paid edition of the site. Freemium is a model where the product is entirely free and additional gimmicks or features are unlocked by micro-transactions (like 99c for extra Santa card layouts.)
Anyways, non-story, yada yada.
Zynga's revenue for 2011 was roughly 1 billion:
http://blogs.wsj.com/venturecapital/2011/12/15/so-whats-zynga-going-to-do-with-all-its-cash/
EA's revenue for 2010 was roughly 3.65 billion, with roughly 800 million in 'digital revenues':
http://en.wikipedia.org/wiki/Electronic_Arts
So Zynga took in less than 1/3 what EA did this past year, still impressive, but quite far from beating EA so far.
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.".