Wednesday, February 20, 2008

Business Software and the Freemium Business Model

As a previous post indicates, I am a fan of the freemium business model and I believe it is an customer acquisition strategy worth considering for start-ups, not just in the Web consumer services world but even for those developing business software. Yesterday, however, I had an epiphany in terms of what type of business software offerings it may -- or may not -- be suited for.

Until yesterday, I was of the mindset that the freemium business model could be applied to most business software offerings and it was a matter of coming up with the right packaging to determine which features should be offered for free and which should be offered as premium, for-pay features. I am now of a different mindset.

In the business software world, I think the freemium business model is ideal for the following use cases:
  • Offerings that are targeted at an individual and where no organizational decision making is required to decide whether to use the offering or not. LinkedIn is a good example of this.
  • Offerings that involve small workgroups and where its initial usage is not part of a business-critical workflow (i.e., its usage does not require high-level authorization within an organization). Wikis, I believe, are a good example of this type of offering. Within organizations, wikis can initially be used by small groups of people for purposes that are not business critical.
Perhaps more importantly, I think the freemium business model is NOT ideal for offerings that are a part of business-critical processes and require high-level authorization within an organization. Organizations are leery of using a "free" solution for an important function. For this type of use case, I believe the "try before you buy" approach used by companies like Salesforce.com are more appropriate.

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