Taxonomy of Seven Different Models of Freemium in B2B SaaS

Taxonomy of Seven Different Models of Freemium in B2B SaaS

A presentation by SaaS Marketing expert andGrowth Hacker Lincoln Murphy of SixteenVentures

You think you know Freemiumin SaaS? Think again!

In 2009 I released the version of “The Reality of Freemium in SaaS” PDF and since then the “Freemium” landscape in SaaS has continued to evolve rapidly.

Freemium use in B2B technology / software / SaaS / Web Apps / Cloud is rapidly evolving and I wanted to take note of where we are at today… where we’ll be tomorrow I can’t tell you, but I guarantee it will be different.

Copyright© 2014 Lincoln Murphy. All Rights Reserved.

Why do we need this list?I wanted to also call attention to the fact that the use of “Classical Freemium” – the idea of a free version of a premium product – is losing popularity as the go-to method for adopting Freemium, with other types of Freemium coming into play.

This is with both pure-play startups and established companies moving to Freemium.

I’ve made a list of the 7 different types of Freemium below, but this isn’t meant to be an exhaustive list… if you have other ideas, please share them in the comments.

What I’ve tried to do here – more than anything – is indicate that there isn’t just one way of doing “Freemium” and maybe to a larger extent show the term “Freemium” is used even when there isn’t a clear Free > Premium path.


The Hybrid Freemium Model

Few companies will tell you they conform to any of these, which is great… they shouldn’t be trying to conform to these “types” but instead do what is best for their market, users, customers and their company.

I even had a hard time deciding where to put certain companies – like Evernote and SolarWinds – because they don’t nicely fit in one “type”. But I don’t think that makes these “types” any less relevant.

In fact, many of these “types” of Freemium aren’t exclusive within a single company. The most successful models use a hybrid approach, for instance using the Freeware 2.0 & Ecosystem models together.


Presentation Source

This presentation is based on my popular “There are 7 Types of Freemium and Why That Matters…” post... you can find a lot more detail on the techniques and ideas presented here:

http://sixteenventures.com/seven-types-of-freemium

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Freemium PsychologyPretty much, if there is a “free” component to a marketing strategy these days, it is called “Freemium.”

Where most companies go wrong is when they confuse “Free Trials” with “Freemium.” If you think Freemium is just an extended “try before you buy”… you’re in for a serious rude awakening.

There are MASSIVE psychological differences between “Free Trials” and “Freemium” that you need to understand. But for now, just understand what I am listing here are “Freemium” and not “Free Trials” and that confusing the two will cause massive issues and probably not give you the results you’re looking for.

Copyright© 2014 Lincoln Murphy. All Rights Reserved. http://sixtenventures.com/



Freemium Type 1: Traditional / Classical

Free-forever feature-limited-but-usable version of a premium product

The one that started it all

The one that most people know

The one with the major penny-gap issues

Expectations that most users will never buy – by both the vendor AND user

Examples: Expensify, LogMeIn




Freemium Type 2: Land & Expand

Also called the bottom-up approach

Free to acquire by users; Monetization at organization level

Where the user & buyer are the same, the model uses a lock-in model to gain a foothold within an organization

Expectation by vendor is after x % users in a company, they’ll pay

Examples: Yammer (Acquired by Microsoft in 2012 or $1.2B), Dropbox, Box




Freemium Type 3: Unlimited “Free Trial”Not really a “Free Trial” – the vendor likely doesn’t understand the true dynamics of Freemium (which will likely come back to haunt them)

Free-forever feature/usage/UX-crippled version of a premium product

Expectations by vendor are that they user will convert/upgrade

Expectations by user is continued-forever use for free

This seems like a risky type of Freemium to adopt since it is mixing the elements of a Free Trial with the psychological aspects of Freemium.

Examples: Echosign, BasecampCopyright© 2014 Lincoln Murphy. All Rights Reserved. http://sixtenventures.com/



Freemium Type 4: Freeware 2.0

Free-forever, fully-functional product

This is their main product or a completely new stand-alone product line within a larger organization

No expectations of conversion/cross-sell by MOST free users

Monetization is through add-ons for the free product created by the company itself

Examples: Evernote, Skype, AVG




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Freemium Type 5: Alternative Product Strategy

Similar to Freeware 2.0, but from a company with an existing premium product-line of which this is a discrete subset.

A Free-forever product with no direct up-sell path to “premium” version

Often used as a foot-in-the-door strategy

Goal is to cross-sell other offerings from the company

Examples: Autodesk’s SketchBook Pro for iPad, join.me (a product of LogMeIn), SolarWinds




Freemium Type 6: Ecosystem

Free-forever base product

Monetization occurs through revenue share with 3rd parties, like add-ons by 3rd party developers

Examples: iTunes, Google Apps, many commercial open source vendors leverage this plus professional services for monetization




Freemium Type 7: Network Effect

Monetize eyeballs, aggregate behavioral data, etc.

This is the idea – to whom I cannot find original attribution – that if you aren’t paying for the product, then you ARE the product. Or you’re creating the product through your use of the system.

Examples: Spiceworks, Google (advertising), Wave Accounting




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Thank You!

Lincoln Murphy

Sixteen Ventures

[email protected]

http://sixteenventures.com

@lincolnmurphy




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http://twitter.com/lincolnmurphy

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Taxonomy of Seven Different Models of Freemium in B2B SaaS

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