venture companies should adopt a free value-added model
?The general partner of Jules Maltz
Vc firm IVP wrote in a recent article, discussed the business whether the company should adopt the "free value-added (Freemium)" business model, and can learn from the use of this model in 6 experience.
over the past few months, the industry around the freemium model has heated debate. Some people believe that the freemium model is a huge price trap, forcing companies to sacrifice revenue to support the user will never spend money. While others believe that the freemium model represents the future, because bandwidth, storage and information processing costs tend to zero. But everyone agrees that the freemium model is very powerful. HitTail Rob Walling recently pointed out that the freemium model resembles a samurai sword: "unless you are a true swordsman, otherwise it will mistakenly put her arms off. "
in IVP, we are not there, but we believe that the freemium model will become a destructive force, need to be fully aware of. Over the past few months, we interviewed a number of free value-added model leader, including 37signals, Dropbox, Evernote, GitHub, HootSuite, New, Relic, SurveyMonkey, Weebly and Zendesk. To ensure simplicity, we focus only on software companies that try to convert free users to paid users, rather than advertising based companies. With the help of these companies, we summed up the 6 points of the freemium model.
1) starting from the product
in the interview, a topic has been repeatedly talked about: to ensure that the product is the highest priority of the work. Designing a high quality product is important for any startup company, but for a company that takes a freemium model, this is especially critical and challenging. Perfect value-added products to promote self promotion, attract new users (including free users and paid users), retain old customers, automatically provide user services, and almost all of them without manual intervention. It is possible to do this only if the product is well designed and well received by the user.
typical free value-added companies can convert 1% to 10% users to pay users. Therefore, the free value-added products should have: a) lower marginal cost; b) the lowest sales marketing costs. Since most users do not pay, so if the product marketing, publishing and support costs are too high, then the free value-added companies will encounter trouble. Products need to be self marketing, with its own advantages to attract loyal users, without having to spend a large amount of marketing budget. For users, such products need to be simple and useful". This >