Thousands of new web applications are released every day. In this highly competitive environment, some companies compete for market share by releasing “lite” versions of their product at no cost. Making apps available for free can be a powerful marketing tool, and is a great way to quickly expand a user base. But for companies to succeed with this approach, they need to strike the right balance between encouraging consumers to upgrade, and providing value to customers at all price points. Strong customer engagement is at the heart of doing this well.
Freemium (a combination of free and premium) or tiered services are used in a variety of ways. The approach is common with video games, where users download and play for free, but pay for upgrades or access to special features. This model is also used for popular services like LinkedIn, SurveyMonkey and Dropbox, and the approach is increasingly being used for web applications. Key challenges include knowing your market, and deciding which features to offer at no cost and which ones to charge for.
According to this Forbes piece, freemium models fail when companies offer too little or too much value with their free product or service. The trick, it says, is to ensure that “anyone can get some value without having to pay” and that “those who upgrade to the paid version receive exceptional service”. Striking this balance is a key consideration for Brent Claxton, Chief Product Officer at ClearPicture.
“The free version has to deliver,” says Claxton. “It can’t be so stripped down that it doesn’t provide value to the customer.”
Smart companies view freemium not only as a revenue model but also as a commitment to innovation.
– Harvard Business Review
This piece by the Harvard Business Review notes that, “smart companies view freemium not only as a revenue model but also as a commitment to innovation”, by adding new features and increasing the value of the premium offering.
Using the freemium strategy together with the minimum viable product approach to product development—where the market helps drive the product development process—puts customer engagement at the centre of everything, which Claxton sees as a win for everyone.
“It creates an exciting opportunity to talk to people about where they think [the app] can go,” said Claxton. “We’ve had great feedback that we can use to deliver a product that people can use in different ways.”
By drawing on customers’ feedback on what features they want to see, companies can position themselves to innovate in a way that serves the market best, at every price point.