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Why Freemium Doesn't Work

samzenpus posted more than 2 years ago | from the you-get-what-you-pay-for dept.

Businesses 321

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."

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321 comments

Free2play in games... (4, Insightful)

blahplusplus (757119) | more than 2 years ago | (#38594774)

... seems to contradict his argument. The game is free to play but there are aspects of the game that are enhanced if you pay.

Re:Free2play in games... (1)

Arran4 (242789) | more than 2 years ago | (#38594788)

Think of the items they sell as independent products that extend the game, and it works fine.

Re:Free2play in games... (5, Insightful)

Anonymous Coward | more than 2 years ago | (#38594932)

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.

Re:Free2play in games... (2, Interesting)

SerpentMage (13390) | more than 2 years ago | (#38595162)

Come on get real here...

The freemium model is a sucky model. It does not mean that freemium can't work for some. Just like how OpenSource works for some, eg Redhat, but on the whole Open Source is devastating the software development and sell model. Compare the revs of those companies that only sell software and those companies that sell or enhance or what have you with open source. The difference in monies is monumental! I am not complaining here, I am saying it as it is.

I remember nearly a decade ago I was at SD hosting a BOF on the impact of Open Source. We danced for hours around the issue and it was a very good BOF. At the end I summed it up and we all agreed, the software developer will not make the same amount of money as they had until the 2000 crash. I stand by the statement and it was true. Since 2000 the wages of the software industry as a developer have been driven down due to Open Source, and due to out sourcing.

Again not saying that nobody can make money. It is just that Software has become a winner take all model. Where a few make good decent money, but most struggle to make any money. I instead use Open Source to solve other problems. Makes things good for me though, but I am not creating base infrastructure software like I did in the 90's. It is what it is, and freemium is the same thing...

Re:Free2play in games... (4, Insightful)

Enderandrew (866215) | more than 2 years ago | (#38595218)

I believe Zynga took in more money than EA this past year. And a couple years ago Zynga didn't even exist. EA has been scrambling to copy Zynga's freemium model.

MMO after MMO that was losing money have switched to freemium models and become more successful than they ever were with premium models.

And companies like IBM, Google, etc. make billions on the back of open source software. But clearly you're right that this is the exception and can only work in a handful of cases. They must only succeed out of dumb luck, because the model itself can't possibly make any sense. Companies like Google don't know what they're doing.

Re:Free2play in games... (5, Interesting)

DCTech (2545590) | more than 2 years ago | (#38595368)

That's absolutely correct. Zynga is taking in more money and valued higher than the whole EA and the only way MMO's have been able to battle WoW has been with free2play models.

On top of that Valve has had huge success by making Team Fortress 2 free. The best thing about TF2 is that it doesn't even feel like they're trying to cash you. You can get everything in the game, but the game is so good that I have happily spend some cash on the store too. On top of that they have created such a good in-game economy that people are spending time on trading inside it and cashing out. And just to say it again - all of this without making the game worse or anyone feeling like they need to buy something from the store, because you can get everything via game, trading or crafting too. And the vanilla weapons are often better than the unlockable ones!

Re:Free2play in games... (1)

gl4ss (559668) | more than 2 years ago | (#38594956)

look, if you're thrifty or want free stuff. you wouldn't be playing those games in the first place. nothing free about them, quite the opposite. so those who are playing them are thinking about paying quite a lot, in fact the whole time they play they'll be thinking about money and if to spend it on some stupid in-game product or not.

Re:Free2play in games... (2)

deains (1726012) | more than 2 years ago | (#38595050)

look, if you're thrifty or want free stuff. you wouldn't be playing those games in the first place.

Wait, what? Haven't you even heard of FarmVille?

Re:Free2play in games... (1)

icebraining (1313345) | more than 2 years ago | (#38595402)

That depends on the game. Some actually require you to spend money to advance, but others just trade time for money (you can get the same for free if you spend time grinding).

Re:Free2play in games... (4, Insightful)

Mad Merlin (837387) | more than 2 years ago | (#38595010)

Multiplayer games also benefit greatly from network effects. Nobody would play WoW if they were the only one on the server.

If you don't have a 9 figure marketing budget, you're probably struggling to get more players, and as mentioned already, most multiplayer games aren't fun without a lot of other players. So keeping that in mind, why would you go and shoot yourself in the foot by turning away 90% (or probably more) of your potential users by requiring payment up front?

For example, Game! [wittyrpg.com] is free to play and has been played by thousands of people, it also has a marketing budget of $0. I can only imagine if I'd required payment up front it'd probably have been played by dozens or maybe hundreds instead. That's a pretty big difference.

Unsurprisingly, people have been conditioned to expect things for free on the Internet. Making the jump from free to a penny is much larger than the jump from a penny to $10 or probably even $100. People will spend $5 on a latte every day and think nothing of it, because nobody is giving away free lattes, but ask them to spend $5 to access a website and they'll balk, after all, there's all those other websites that they can access for free.

Re:Free2play in games... (4, Funny)

stewbacca (1033764) | more than 2 years ago | (#38595078)

Nobody would play WoW if they were the only one on the server

Oh gawd how wrong this is. I played WoW despite the thousands of morons on my server. The average intellectual power of random WoW player is pretty much indiscernible from the NPCs. Often the only way to tell the difference between the two is the NPCs frequently have a big yellow exclamation point above their head.

Re:Free2play in games... (1)

arth1 (260657) | more than 2 years ago | (#38595098)

Multiplayer games also benefit greatly from network effects. Nobody would play WoW if they were the only one on the server.

That's the only way I would play WoW.

Re:Free2play in games... (1)

arth1 (260657) | more than 2 years ago | (#38595190)

People will spend $5 on a latte every day and think nothing of it, because nobody is giving away free lattes,

Um, many workplaces do. Granted, you have to be smart enough to figure out how to use the espresso brewer and the steam attachment, but if you aren't, why did they hire you?

Re:Free2play in games... (0)

Anonymous Coward | more than 2 years ago | (#38595260)

I would pay five bucks (or some type of monthly fee... you know, like a magazine) to access a well designed website that had great content and no ads. I'd probably pay ten if it would get rid of all the crappy sites that are regurgitating content to post with their ads.

Re:Free2play in games... (5, Insightful)

tbannist (230135) | more than 2 years ago | (#38595026)

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.

Re:Free2play in games... (0)

Anonymous Coward | more than 2 years ago | (#38595158)

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.

>

No it doesn't. The position:
Lots of people are paying for this content, but the vast majority are not, and the ones who are not are costing me too much money. I'm going to ditch the free-loaders and go pay only.

Is entirely self consistent.

Re:Free2play in games... (2)

rtb61 (674572) | more than 2 years ago | (#38595198)

The reality is any tech minded people will look at a site like that or the email greeting card sites as what they are, data and email harvesting sites of the worst order. Generally speaking the only time you want to make use of anything like that is from a site that already has your details and you are aware of the privacy laxities, no need to add another to the list.

Re:Free2play in games... (1)

Liambp (1565081) | more than 2 years ago | (#38595080)

It is true that gaming companies have refined the premium model to a fine art AND many of them are making good money out of it. They use all kinds of hooks to entice you into paying and to keep paying once you have made that first purchase. Even so, from what I have read it is generally accepted that 90% of your customers won't pay a dime so you just have to get enough revenue from the 10% who will. Personally I am quite uneasy about this aspect of freemium because by design the few paying customers have to subsidise the many and therefore they must pay way over the odds. In the gaming world you hear of committed players customers spending $100's every month on a fairly rudimentary games as opposed to the $15/month charged by the few remaining subscription games.

The game companies also have the support issue nailed. Free customers get no direct support. If lucky thy have access to a single forum.

Re:Free2play in games... (1)

lynnae (2439544) | more than 2 years ago | (#38595224)

In the gaming world you hear of committed players customers spending $100's every month on a fairly rudimentary games as opposed to the $15/month charged by the few remaining subscription games.

... or as opposed to those who play well made online games that have no subscription and a one off fee like Guild Wars.
or games like Anarchy and Ryzom which are both free, totally, for vary large portion of the game.

the small amount of people who rack up debt to farmville are very odd ducks indeed. I don't think any subscription system would save them from their own madness.

Skype, too (2)

Asic Eng (193332) | more than 2 years ago | (#38595420)

Skype is Freemium. You can make free calls from user to user, but if you want to call traditional phones you need to pay extra. If you want a traditional phone number you also pay. Seems to work.

Comparison from the gaming world... (5, Interesting)

RogueyWon (735973) | more than 2 years ago | (#38594796)

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.

Re:Comparison from the gaming world... (2)

DCTech (2545590) | more than 2 years ago | (#38594886)

Free2Play games aren't bad per se, but the companies making them need to take correct approach to it. Team Fortress 2 is one of the greatest examples of a good F2P game. The game itself is free and apart from cosmetic things (hats), you can get every item in the game by just playing or trading. But still it makes Valve money because people are also lazy and just buy the item they want for a few dollars from the store.

If you play the game more you might be interested in buying those hats too. It's a ridiculous idea, but as geeky as I am, I love it too and have spend cash a few times to buy paints for my hats and some hats too. If I'm playing the game more, it's just fun to have some fun hat. But I have never felt like I would be forced to spend cash or that spending cash would give some advantage, because it doesn't. Even the vanilla stock weapons are often much better than the ones you need to unlock!

Re:Comparison from the gaming world... (5, Funny)

RogueyWon (735973) | more than 2 years ago | (#38594998)

That's true, but ultimately, TF2 is in a differerent marketplace to the MMOs I play. Despite a degree of character-persistence, it's an fps at heart, not a MMORPG. As such, its competitors are the Battlefield and Modern Warfare games.

I tried about 10 minutes of MW3 on a public server. In the space of that time, I learned 14 new descriptive terms for body parts, 12 new racial slurs, detailed descriptions of 15 new acts that consenting adults might conceivably (though improbably) choose to perform together and more than 300 different ways of spelling and pronouncing existing obscenities.

I crawled back to Dark Souls, both for the blessed silence that permeates so much of the game, and the sense that I was playing a game that just hated me slightly less.

Re:Comparison from the gaming world... (0)

Anonymous Coward | more than 2 years ago | (#38595334)

High InsightInteresting140BytesFellow. You suck.

Re:Comparison from the gaming world... (1)

ShakaUVM (157947) | more than 2 years ago | (#38594952)

The freemium model is apparently working very well for a lot of MMORPGs and Facebook games. That said, I have little desire to play MMORPGs any more, and even less to "pay to win" at something I don't really care very much about. I actually subscribed to D&D Online after it went free to play for the reasons you outlined above (you know exactly how much you're going to spend, and all the freemium options worked out to a lot of money anyway), but the game permanently bugged my character, and I couldn't play it, and couldn't get a refund either, so that sort of left a bad taste in my mouth for the whole experience. Fuck Turbine's customer support.

The Old Republic is a fun single player game that just happens to be an MMORPG. If it becomes another freemium game, I'd quit it in an instant.

Re:Comparison from the gaming world... (1)

neokushan (932374) | more than 2 years ago | (#38595022)

I think Free2Play and Freemium are very similar, but not quite the same thing. Free2play generally involves microtransactions that you can opt for, with many games practically requiring them if you don't want to waste your life grinding.

Freemium implies that the product itself is totally free, often funded via other means (usually ads). Freemium does work, freemium magazines have had success stories all over the place where traditional mags have been dying off due to the internet.

In fact, one could argue that Facebook is a "Freemium" service. You don't pay a cent to use it, yet it has many features that traditionally you'd have to pay a membership fee for - and it makes boatloads of cash.

Re:Comparison from the gaming world... (1)

Enderandrew (866215) | more than 2 years ago | (#38595254)

Freemium is a mix of free and premium, which means it is supported by micro-transactions or a percentage of the customers paying a subscription.

Freemium does not mean free for everyone, but supported by ads.

Re:Comparison from the gaming world... (1)

neokushan (932374) | more than 2 years ago | (#38595412)

Freemium is a mix of free and premium, which means it is supported by micro-transactions or a percentage of the customers paying a subscription.

Freemium is not a mixture of "free" and "premium", it's meant to be free premium material. Freemium models exist that do not rely on subscriptions or micro-transactions - particularly, freemium magazines and just about everything that is supported by ads.
Why is it that when something's ad-supported, it's no longer either free or considered premium? Is there some definition of "Premium" that specifically says "Product or service that does not feature advertisements" that I am unaware of?

What about Premium (not free) Magazines? They still have ads in them, so the whole ad-supported-or-not thing doesn't really gel there, either.

How about "Angry Brids"? The iPhone and Android versions are identical, except the Android version is free and paid for by ads (you can also buy an ad-free version of course). No Microtransactions are involved (well OK they added the "Mighty Eagle", but that was later in the game's release and it made plenty before that).

What about "GetJar"? It offers free PREMIUM apps and is largely supported by ads. No Subscriptions there, either. Is that not Freemium?

Re:Comparison from the gaming world... (2)

flibbidyfloo (451053) | more than 2 years ago | (#38594962)

You apparently haven't played Lord of the Rings Online since they went F2P, or possibly even DDO. Neither of these, in my experience suffer the problems you describe, and both are doing quite well as fun and friendly F2P enterprises.

Re:Comparison from the gaming world... (1)

RogueyWon (735973) | more than 2 years ago | (#38595016)

I tried LOTR:O for a short time after it went free to play, just to see how it was working out (I'd been a subscriber for a short time in its early days). I didn't stick with it for more than a day, though - in this case because it didn't feel distinct enough from WoW in any particular way to compensate for the fact that it was so obviously less polished than WoW.

Re:Comparison from the gaming world... (1)

bertok (226922) | more than 2 years ago | (#38595128)

Gah... don't get me started!

Team Fortress 2 has recently become free-to-play, and it's now suddenly full of 13 year olds with hacks, and there's nothing you can do about it. Before, you'd just get their Steam ID banned, and that would be it. Now, they just create a new free account, log back on right away, and continue griefing like nothing happened.

Mind you, that still takes some effort -- they have to register for a new Steam account, and possibly even change their CPU ID, but as long as there's no financial penalty, some twits are willing to go to that level of effort just to harass other people.

One of these days, I'm going to find one of those people, and I swear it's going to take all of my will to stop myself from indulging my inner Dexter.

Re:Comparison from the gaming world... (1)

antifoidulus (807088) | more than 2 years ago | (#38595332)

Not to mention constantly worrying about what might be free, what isn't, and what is just a tease for premium content really takes you out of the game. Now instead of just exploring/playing how you want, you have to sit back at every decision point and ask whether or not x is worth spending money on, doesn't sound particularly enjoyable to me.

Mmmm not true (1)

Anonymous Coward | more than 2 years ago | (#38594804)

My response to this article is: GOOGLE

Freemium doesn't work for Google?

Google Adwords... Gmail..... Google Search...

This company is a super star in Freemium.

I also disagree that freemium customers don't pay, the freemium model in itself means we are paying by just using, but Google again for example has many products you can buy with real money from Google directly for instance if you're a business who likes Gmail, you can pay to take your business onto Gmail.

Re:Mmmm not true (1)

mikkelm (1000451) | more than 2 years ago | (#38594954)

You can't really draw comparisons with Google. The model that Google are operating on doesn't attempt to make their regular end-users fork over money at ever junction; in fact, it doesn't even provide a way to pay for most of their services at all, unless you're a business.

Google make their money off of advertisement. It has nothing to do with "freemium."

Re:Mmmm not true (1)

neokushan (932374) | more than 2 years ago | (#38595038)

I think the business model of "Give away stuff for free and beg for money after" is what's really flawed, not the freemium "Give away stuff for free, get others to pay for it" model.

Re:Mmmm not true (2)

MrAngryForNoReason (711935) | more than 2 years ago | (#38595006)

My response to this article is: GOOGLE

Google don't have a freemium business model they have an ad-supported business model.

Freemium means you have a large user base of users who pay nothing and a smaller number of paying users who pay for a premium version of whatever you are offering. Free + Premium = Freemium.

Google don't offer premium version of their services they make their money by showing ads to their free users. The only paid for services they do offer are business versions of some products like Gmail and Google docs but this is a completely different market.

Re:Mmmm not true (1)

stewbacca (1033764) | more than 2 years ago | (#38595100)

Selling their customers' souls to advertisers is Google's business model, not freemium.

Re:Mmmm not true (1)

Enderandrew (866215) | more than 2 years ago | (#38595264)

Google doesn't hand anything of the customers to advertisers. They hand ads from the advertisers to the customers. There is a distinct difference compared to companies like Facebook that do basically sell your data directly.

Re:Mmmm not true (1)

stewbacca (1033764) | more than 2 years ago | (#38595376)

That semantics. Google doesn't exist if they don't tell advertisers what Google customers are doing on the Internet. I didn't say Google sells customer's data, I said they sell their souls (which is another way of saying "advertising").

For 1 data point (5, Insightful)

Zoxed (676559) | more than 2 years ago | (#38594806)

So 1 site gets it wrong, and the whole model is broken ?
I think not !!

Re:For 1 data point (2)

The MAZZTer (911996) | more than 2 years ago | (#38594836)

Yeah. I don't have figures on hand but apparently Team Fortress 2 has been making wheel-barrels full of money for Valve since going F2P.

Re:For 1 data point (2, Informative)

Anonymous Coward | more than 2 years ago | (#38595040)

It's "wheelbarrow", from "barrow", "a small vehicle used to carry a load and pulled or pushed by hand."

http://en.wiktionary.org/wiki/barrow#Noun_2 [wiktionary.org]

(Barrel / cask / keg / drum / etc is the large cylindrical container for storing beverages, chemicals or, historically, certain foods)

Re:For 1 data point (2)

chrb (1083577) | more than 2 years ago | (#38594924)

Yes, some flawed statistics here. Mr. Nichols doesn't actually say how many paying customers he got, but then talks about a "rate" of under 20 asking for help. Without knowing what the total figure was this is impossible to evaluate. It also appears that he was charging for things that offered little extra benefit - a higher resolution image of the Santa letter. He concludes by saying he will switch the site to pay only - good luck with that.

Re:For 1 data point (0)

Anonymous Coward | more than 2 years ago | (#38595066)

This SO MUCH.

I wish people would stop picking out the bad things wrong with a certain model and blasting the entire model as a failure.
There are MILLIONS of fremium services all around the world that work absolutely fine, on the internet and off the internet.
They are paid by the millions of advertisers out there who want to get their products to as many people as possible, or paid from another company that has a paid-for as its service model. (still technically freemium even if indirectly paid for by another)

Others offer really cheap services with ads too. These work pretty well since they aren't entirely dependent on advertising income, which can go dry on and off at random.

Then there are the free2play and pay2win (awful twisted version of it) methods that have been growing in numbers recently.
The pay2win system is pretty horrible and the method that shouldn't be used, especially not as your only system since it is pretty dodgy and can backfire horribly.
Not all versions are bad, of course. You obviously have to pay to win at, say, an online casino or whatever. But some offer you free bets and the like. Sometimes you can even win and that gives you incentive to want to come back. Nothing wrong with that as long as it isn't abused and done on purpose to make you want to come back. (but lets face it, of course they'd do that, even if it was a small win)

Many of these services are decades old, some are just getting off their knees and in to the big bad world of commerce.
Plenty of them end up closed, just like the millions of non-freemium services that get closed every year too.
Whether it is a local shop in your town that failed to get the right market penetration, or a new MMO game that failed horribly after you spent millions on it.

I always find it a little sad to see services die off, especially when so much effort has been put in to them. But this is the way business works.
It is our best metaphor for evolution, to be honest. If you don't find the right balance, your business will fail. If you don't adapt, it will fail.
I tend to think of the music industry as the human race now: a mess that is slowly, but surely, beginning to show its age and is reaching breaking point. If we don't adapt quicker, resources are going to continue to fall until an eventual resource war that will happen again. And these ones will be much worse than the oil war currently happening. (you know it isn't about terrorism, anyone with half a brain knows that, that is only one part of the equation)

Re:For 1 data point (1)

jduhls (1666325) | more than 2 years ago | (#38595108)

I posit that anyone wanting a free letter from Santa (the king of "Freemium" - he brings you free shit every year) is a demanding person by nature if they expect so much free shit in their lives anyway. His business model merely attracted materialistic jerks who demand free shit once a year anyway.

Plus, he used comic sans on his website. That always attracts the worst customers.

People Highly Valued a Santa Letter Generator? (1)

JumperCable (673155) | more than 2 years ago | (#38595152)

Shocked! Absolutely shocked I say that people would gladly accept a letter from Santa wizard when offered for free, but question is value if asked to pay for it. I don't see how on earth he came to the determination that people highly valued a Letter from Santa wizard? I call bullshit. Perhaps he asked in a follow up questionnaire. Sure people will respond favourably when there are no strings attached. But I wouldn't pay a dime for that service. 5 minutes with google images & Microsoft word and I have something pretty darn similar.

I dont agree (1)

Anonymous Coward | more than 2 years ago | (#38594820)

I will buy additional storage from dropbox soon. However if they didnt offer 2GB in the first place, I wouldnt even know or try their service.

Who would pay for a Letter from Santa? (4, Insightful)

gatkinso (15975) | more than 2 years ago | (#38594834)

Seriously.

I can think of examples where Freemium works (EVE, JIRA).

Re:Who would pay for a Letter from Santa? (1)

HopefulIntern (1759406) | more than 2 years ago | (#38594942)

My first thought as well. From what I can see, all you get is just a printable letter with a colourful background, something that can be knocked up in Photoshop, MS Word or even Paint in about 5 minutes. Unless I have missed the point entirely, I am not surprised nobody paid for this.

Re:Who would pay for a Letter from Santa? (0)

Anonymous Coward | more than 2 years ago | (#38594968)

People pay to read the words of god. Why should Santa be any different?

Re:Who would pay for a Letter from Santa? (2, Insightful)

Anonymous Coward | more than 2 years ago | (#38595044)

Actually, you can generally get a Bible for free if you want one. It's fancier copies that cost money.

Re:Who would pay for a Letter from Santa? (2)

dfm3 (830843) | more than 2 years ago | (#38595138)

TFA doesn't explicitly state how many paying customers the site had (at least 20), or how much the paid service cost, but obviously there's a small niche there.

You or I may not see the need to use a website to design a letter from Santa because we're probably more adept at using our own tools to accomplish the task. I can easily fire up a word processor, find a template and a few clipart images, and create a Santa letter in just a few minutes. Most "average" computer users I know would probably need an hour or so to get it right. The developer of the site was hoping that they could tap into the niche of people who feel that a few bucks (or whatever the cost was) is worth the time saved by using a website to accomplish the task.

Many of my family members are into sendout cards, which follow a similar business model: you create greeting cards on a website using premade templates to which you add your own text or pictures, then pay a few dollars to have the company print and mail them for you. Sure, they could buy the glossy paper, envelopes, and stamps and do the same thing for about the same price using tools they have in the home, but they find it worth paying for the convenience.

Unfortunately it seems that this developer slightly missed the mark and ran afoul of the fact that there is a significant overlap between the following subsets of users:
1. Those who want to use an online template rather than a word processor
2. Those who are too cheap to pay a few bucks for a product that (I'm assuming here) saves them time
3. Those who are too lazy to read the FAQ before firing off an email to a developer
4. Those who habitually mark emails as spam, even if they are in response to #3

Freemium model and user demands (4, Interesting)

davecrusoe (861547) | more than 2 years ago | (#38594866)

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

Valuable Service? (2)

Captain Hook (923766) | more than 2 years ago | (#38594882)

'most people who want something for free will never, ever think of paying you, no matter how valuable they find your service.'

Just how valuable is a gimmick letter template with some cheap clipart background images which you have to print out yourself?

The final product is something that could be done with any word processor in about 10 minutes.

Re:Valuable Service? (0)

Anonymous Coward | more than 2 years ago | (#38595014)

Honestly this - people may be more inclined to pay for the service if it is actually worth something...

Dropbox shows it can be done (5, Informative)

nagarjun (249852) | more than 2 years ago | (#38594888)

From Forbes magazine's Nov 2011 edition [forbes.com] ; 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.

Re:Dropbox shows it can be done (1)

dbIII (701233) | more than 2 years ago | (#38595256)

It's truly a paradox that something which is flawed on so many levels is so successful. I don't know how many stories there have been here alone about how they've made false claims about security and have failed so badly that even plain FTP is far more secure. Perhaps they are being dishonest in other areas as well in order to appear far more impressive to potential investors?

Re:Dropbox shows it can be done (2)

mapkinase (958129) | more than 2 years ago | (#38595288)

Apples and oranges. Profitability per person predictably drops for large companies.

Re:Dropbox shows it can be done (1)

antifoidulus (807088) | more than 2 years ago | (#38595306)

Dropbox is essentially just a middleman for Amazon s3, their entire business model depends on Amazon(or another provider) continuing to remain cheap forever, maybe a good business model but tying your fortunes so closely to another company like that seems like it's just asking for trouble.

Re:Dropbox shows it can be done (1)

Richard_at_work (517087) | more than 2 years ago | (#38595396)

I'm a huge advocate of Dropbox, but their customer facing side is really quite bad - very little employee interaction on the forums, VoteBox basically completely ignored, support tickets are hit and miss (either it gets handled right away or you wait days - even for similar requests), and their product development is glacially slow (their first new feature in over 6 months is something no one was expecting and wasn't being asked for - a photo importer fr the desktop app).

They may be profitable, but they are losing customer focus.

Resemblace to Linux users is purely coincidental (-1, Flamebait)

thanosk (946232) | more than 2 years ago | (#38594898)

Why do his customers sound too much like Linux desktop users to me? and yeah it is a flame bait and yeah it is unfortunately true as well

GaiaOnline would like a word. (1)

RyuuzakiTetsuya (195424) | more than 2 years ago | (#38594908)

The summary cited MMOs as why us Slashdot geeks would argue freemium works.

Wrong. GaiaOnline. GaiaOnline makes a whole crapload of money for their in-world virtual currency. I don't think it qualifies much as a game.

Why Freemium doesn't work is because your "free" service isn't good enough for people to buy into the "premium" part(I'd say that it's also possible for your free to be so good you don't feel pressured into buying the premium product; but I suspect this is rare). That's why Dropbox, Gaia, MMOs(well, some; pick your favorite example), PSN(For sake of argument, let's just say this is a successful "freemium" service?), etc. work. The base product is fairly good, and the premium features are worth the extra out of pocket costs.

Results (3, Insightful)

Aladrin (926209) | more than 2 years ago | (#38594910)

"Results? Nichols found free customers are higher maintenance and more demanding than the paying customers. 20 or so paying customers asked questions while "hundreds" of free ones did. And when following up, paying customers never flagged his emails as spam, while many free customers did, and complained."

The numbers mean nothing if we don't know how many paid and how many didn't. I think 20 to "hundreds" is probably a good ratio for paid-to-free in the first place.

As for the spam, if you didn't ask for an email from a free service, and it appears to be advertising something (like his premium services), I think spam is a good label for it. I personally wouldn't flag it as such, but I understand those who would. Without seeing the exact email, it's hard to know why they might do it, though. And the paying customers... Were they annoyed by the email, too? Did they get the same email? How did he know which of the 2 flagged it spam or not? Merely the complaint emails?

In my experience, it's all fine and good to have free customers, so long as you keep them away from your paying customers and don't let it affect them negatively. Free customers really are more demanding. For some reason, they seem to feel you owe them something. It seems to be a bell curve with each end being more entitled, and the middle less so, approximately centering on the market value of the product.

Re:Results (1)

jbolden (176878) | more than 2 years ago | (#38595194)

Remember the email was generated after a period of time. And many of them likely had to create multiple accounts to bypass the one letter restriction.

They likely didn't even remember getting the email from the paid service.

Re:Results (0)

Anonymous Coward | more than 2 years ago | (#38595208)

Free customers exist for two reasons, one, they play much much longer than the paying customer because they need to make up for the differences. Two, they make up the world of the game, if you could have a world where there are 100 paying customers or one where you have 100 paying and 900 non-paying, which would you choose?

There might be a third reasons, paying customers like the superiority they get over the non-paying customers, because in most games, the differences between the two are pretty visible.

Re:Results (1)

Anonymous Coward | more than 2 years ago | (#38595232)

Mod parent up. It's certainly been my experience that "customers" who get something at no charge are more demanding than ones who pay. They seem to think that if you're willing do something for free, then your time is worthless.

Odd example... (1)

Junta (36770) | more than 2 years ago | (#38594916)

After going to his site, it looks on the surface the only thing you pay for is to create more than one 'letter'. This seems like a terrible example of 'Freemium' because there really isn't a lot of room for many potential customers who would want just one to pay for anything. Maybe I'm missing something....

Freemium usually manifests as ad-supported and/or 'the first hit is free' with priced DLC/in-game items. I've heard varying degrees of success brought up, but on the whole a more positive perspective than this site owner has experienced.

Given the relatively nice, straigtforward, and clean site design (e.g. ad-free), I would have assumed this to be mostly a labor of love. If he wanted or needed to get more money, he'd probably need to go ad-supported.

Re:Odd example... (1)

jbolden (176878) | more than 2 years ago | (#38595150)

Which may be the genesis of the spam complaint. He has a bunch of free customers who gave him a 1/2 dozen email addresses to generate more than one letter and saw it as spam when they got a 1/2 dozen emails.

It's not the problem of the model (1)

Hentes (2461350) | more than 2 years ago | (#38594918)

This guy wanted to sell a worthless product and then blames it on the payment model when he failes. The only lesson from it is that people won't pay for shit.

BS (4, Informative)

Tharsman (1364603) | more than 2 years ago | (#38594930)

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.

Re:BS (1)

SecurityGuy (217807) | more than 2 years ago | (#38595424)

His product fits my definition of freemium. You can get a letter free, or a better letter for more. I don't think it has to be micro-transaction based.

That said, his conclusions don't fly without knowing how many paying customers and non-paying customers he had. So he got 20 questions from paying questions and "hundreds" from non-paying. Well, if he had 5-50 times as many non-paying customers, that's completely unsurprising.

I absolutely agree (3, Insightful)

craftycoder (1851452) | more than 2 years ago | (#38594944)

I will not engage in the this freemium model anymore either. Not only do the freeloaders ask for more support than do customers, they bad mouth your product more as well. I believe the process of transferring money from customer to merchant gives the customer a sense of "buy-in" in the product. The customers value it more because they are invested in it. Invested customers then feel MORE willing to invest time figuring out how to use it than do those who get it for free. It sounds counter-intuitive certainly, but I have lots of anecdotal evidence to support this in my career experience. The proof is in the pudding though. The higher I set the price of software in the app store, the happier my customers are with the product. Go figure!?!?

Re:I absolutely agree (0)

Anonymous Coward | more than 2 years ago | (#38594988)

you need to look up cognitive disonance, but w/e makes you most money I guess - not like I'm your customer anyway.

Re:I absolutely agree (1)

jbolden (176878) | more than 2 years ago | (#38595122)

That's common in most things, behavior changes belief not visa versa. And it is very counter intuitive.

Re:I absolutely agree (1)

stewbacca (1033764) | more than 2 years ago | (#38595142)

I will not engage in the this freemium model anymore either. Not only do the freeloaders ask for more support than do customers, they bad mouth your product more as well.

Yes, it's the first-world problem frequently seen any time Facebook changes their UI.

People asked questions? (1)

sgt scrub (869860) | more than 2 years ago | (#38594958)

If you've done anything more than once you know people don't read what you post. I suspect his real anger is the number of people using the service for free compared to those that paid. Just in case someone else goes on one of these ventures...

The geek in the family uses it for free. He/She then tells brothers, sisters, grandma, and grandpa. He/She tells them the process. Those people then pay. The he/she that asked questions and got back, "It is in the beautiful FAQ I lovingly wrote. IOW Please feel free to go fuck yourself.", never send info up the chain.

Linux is Free!? (1)

na1led (1030470) | more than 2 years ago | (#38594970)

What about all those who use Linux, it's free and I think most of those users appreciate their operating system a whole lot more than Windows users. I think the article has it backwards. It's not the Freemium model that causes users to be more demanding, it's Freeloaders (users) looking for free services who are demanding.

Article is crap... (1, Insightful)

maple_shaft (1046302) | more than 2 years ago | (#38594978)

This article is absolute crap and comes off as more of a rant from an unsuccessful entrepreneur with a lame idea than a legitimate logical article with a point.

True some people really never intend on ever purchasing something, and brand influence can play a role, however they are a small subset and not necessarily the one that should be targeted. If you have a good idea that sells itself, and can actually make you realize that with the premium features you will get so much more then the majority of people will have a price they are willing to pay for it.

Other factors to consider are coffee table/water cooler talk. Is your wife going to bitch at you for spending money on premium service for a Letter to Santa site? Maybe. How about if you pay for a premium Dropbox site because she struggles trying to send large groups of photos or other documents to her friends? Probably not if the price was reasonable.

Further if the free service is too restricting or hard to use then potential clients may pass it up because risking ones time evaluating a product is acceptable to most people, but god forbid we pay $2 for a month of premium access to crap software. Then you have to worry about giving them your credit card information. Then you have to worry about their customer support giving you the run around when you call in 26 days and try to cancel the subscription from automatically renewing itself. To hell with all that. Even though its only $2, and we gladly pay more for a cup of coffee without thinking, we don't have to be stuck on the phone with Starbucks in a month trying to cancel future cups of coffee that we never really wanted.

Freemium software (-1)

Anonymous Coward | more than 2 years ago | (#38595004)

What's up with freemium software? Is it good or is it whack?

Almost Everyone Wants Products & Services for (1)

JumperCable (673155) | more than 2 years ago | (#38595030)

'most people who want something for free will never, ever think of paying you, no matter how valuable they find your service.'

The flaw with this statement is that pretty much everyone would prefer to have services and goods given to them for free. And while I do enjoy(ed) many free services, some were valuable enough and reasonably priced enough for me to want to upgrade or donate.

Other services just were not valuable enough for me to want to pay for, or there were alternatives that were better, or stayed free, or the licensing terms were so onerous that it just wasn't worth the time and money.

Pile on top of that, there are many many products out there that people will try for free. But after evaluation, they determine it isn't worth a dime to them or even wasting time with the product or service at all. The market place is filled with competitive products people just have no interest in. Why does the author think that free products or services are critically evaluated on a similar basis.

Stupid Product Maybe? (1)

stewbacca (1033764) | more than 2 years ago | (#38595054)

Maybe a "higher resolution" letter from Santa for paying customers is just a stupid idea and this has nothing to do with the fee/paid business models?

A bad product fails, regardless of price (with a few exceptions, things like Internet Explorer).

letters from santa? really? what the fuck (1)

gl4ss (559668) | more than 2 years ago | (#38595064)

that's his problem right there.
besides, his customers did provide him with 50k unique letters from santa.

but really his business model would have been better if he had said that his giving the profits to charity and pocketed the usual 10%.

Affinity for your brand.... (0)

Anonymous Coward | more than 2 years ago | (#38595070)

Right there is the problem. It was all I could do not to throw up into the waste paper basket. Ass backward marketing wank speak. Brand comes into being after every thing else is in place thats where brand value comes from. You can set things up so that that value is recognised when it develops but short of manufacturing a fake brand to sell to an enterprise that has already has the other stuff in place 'brand' has little place in this equation.

Freemium success (0)

Anonymous Coward | more than 2 years ago | (#38595088)

Evernote begs to differ....

Smarter than the anti-piracy schills... (0)

Anonymous Coward | more than 2 years ago | (#38595134)

'most people who want something for free will never, ever think of paying you, no matter how valuable they find your service.'

In other words, if you pirate and weren't going to pay for it in the first place, you shouldn't count it as lost revenue. And the DRM that stops them pirating doesn't make them pay (In other words, your company does still sustain a loss, a self-inflicted cost of DRM).

Doesn't have anything to do with the site, but with all the recent piracy discussion, I figured it'd help the few slashdotter left that think piracy == stealing.

Statistics? (1)

Diddlbiker (1022703) | more than 2 years ago | (#38595164)

"Nichols found free customers are higher maintenance and more demanding than the paying customers. 20 or so paying customers asked questions while "hundreds" of free ones did"
That, of course, are meaningless statistics to draw conclusions from, without knowing the ratio between paying and non-paying customers. We also don't know what the questions were. If there are 50 freeloaders for every paying customer and each class of customer is asking questions at the same rate, those 20 paying customer questions will be matched by 1,000 non-paying customers -- "hundreds" would suggest that non-paying customers are less demanding.
Also, the questions itself might differ. Maybe those non-paying customers where asking questions about the benefits of paying?

It is his own fault. (2)

Lumpy (12016) | more than 2 years ago | (#38595200)

You never offer tech support to free customers. Spell that out.

"Free customers get ZERO tech support, your questions will go unanswered, you will have access to the WiKi for common answers."

It's the payments stupid. (1)

Tropaios (244000) | more than 2 years ago | (#38595202)

Even in 2012 online payments are a pain in the ass. I have to leave the site, log into Paypal, punch in my credit card number if it's not stored, then head back to the site to complete the transaction.

The problem is that this is a hassle. I hate doing this. If the site used Google Wallet, well, I am almost always logged into Google anyway, and I'd never have to leave the site. Then maybe.

Amazon makes buying easy, iTunes makes buying easy, the Android Market makes buying easy. These are the places I buy from.

If he really wanted to make money he should have made it an iOS and Android app, charged 99 cents for it, let users make as many letters as the wanted and have the app generate PDFs and email them to the users. Have a free version that does low res black and white and the higher quality paid app.

Just my 2 cents.

He did it wrong (3, Informative)

drinkypoo (153816) | more than 2 years ago | (#38595238)

Send non-paying customer questions to a queue that you look at "if you feel like it" and give paying customers a different address (or mechanism!) for support, maybe even a unique one so you know if they've given it away. Problem solved! You can glance over the queue to see if there's any improvements you should make, without having to actually respond to any of that email.

Hilariously, ITworld registered me but I still don't know if they took my comment. When a site is even more incompetent than slashdot you wonder WTF.

Q.E.D. (3, Insightful)

mapkinase (958129) | more than 2 years ago | (#38595252)

Poor people are stingy and mean. In the Western society, divorced from any sensible unsociopathic ideology, that's the rule.

There is no intrinsic good quality in being poor. All the good qualities associated with people in financial struggle come with conjuction with their non-materialistic beliefs - mainly, religion, education, upbringing.

The job ALWAYS has to be paid. You can right a piece of software and put it out on sourceforge for free - that's personal entertainment. Support, bug fixing - ain't entertainment, it's hard work, and it should be paid.

That's how open software works - code is free, but support is not.

I've seen "freemium" work... (2)

mmalove (919245) | more than 2 years ago | (#38595266)

I've seen Freemium work, but as a model you have to truly understand the up and down points. It tends to work best where socialization is part of the service you're selling. IE if it's easier to send cards to someone else that's also a free member, then there's an inherent value to having someone as a free member even if they never spend a dime: they attract and create loyalty in other potential paying customers.

This is why so many MMOs have latched onto the concept, and why it works for farmville and such. People only engage in these games because their friends also play: as solo experiences they are terrible and will quickly bleed customers.

In short, freemium probably isn't a good model for his service if he's looking to make money, but the model should not be altogether disregarded. In some markets, it's very useful, and those ignoring it will be quickly undercut and eliminated by those employing it successfully.

Favorite Quote (2)

strimpster (1074645) | more than 2 years ago | (#38595314)

Never... ever suggest they don’t have to pay you. What they pay for they’ll value. What they get for free they’ll take for granted and then demand as a right. Hold them up for all the market will bear. -Lois McMaster Bujold

Companies give away their product for free (0)

Anonymous Coward | more than 2 years ago | (#38595324)

Big and small companies make a handsome profit giving away open source software. Red Hat comes to mind. You could even argue that IBM bet the farm on open source.

If you can't make money from freemium, you're doing something wrong.

His service is already available from Canada Post (1)

Walking The Walk (1003312) | more than 2 years ago | (#38595328)

Maybe the problem is his business model: he's offering a service that is already available for free [canadapost.ca] . Canada Post had 9,000 volunteers [canadapost.ca] responding to Santa's letters and emails last year. If his competitors offer a similar or better service for free, why would he ever expect anyone to pay for his?

make em work for it instead (0)

Anonymous Coward | more than 2 years ago | (#38595336)

Think Freemium meets Mechanical Turk. The service is exchanged for "labor" of which the site takes a (possibly large) slice of the remuneration.

It seemed to instill an ethic in me as a child. Maybe it would work for the man-children of the interwebs as well.

Too small an increment (1)

AlecC (512609) | more than 2 years ago | (#38595392)

So it didn't work for one particular site. For which the increment for premium payment delivered only a small increment, as seen from many people's point of view. The free product was good enough, the premium not better.

I don't think this invalidates the model at all, just this particular implementation. The value for the premium has to be perceptibly large. I have long subscribed to the This Is True newsletter, which has a premium version - 2 extra stories, no advertising, three days earlier. I see the extra value, and I want to keep the newsletter going. It works for him.

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