Freemium has run its course – our experience

August 8, 2012

Freemium

Recently I came across this piece from Rags Srinivasan “Freemium has run its course”. Here at Nektoon – that’s the legal person behind Squirro & Memonic – we apply both concepts. Memonic is run on the freemium model. The extensions we provide to a number of CRM systems and our upcoming product Squirro is run try-then-buy (actually subscribe model).

A number of the points raised by Rags resonate with the experiences we made. We attracted hundreds of thousands of users for Memonic through the freemium model and receive great feedback from our users. Recent example: “With the right combination of features, ease of use and visual appeal, you get hooked. Such is Memonic for me.” F.G., Canada.

The approach has it’s merits: We enjoy a conversion rate of above 8%, which to my knowledge is very high – higher at least than most of the players in the field of note-taking. By implication this means that 92% either don’t get enough value out of our product to pay for the product or are not willing to pay the cost of service.

I love happy users (albeit I love happy customers a wee bit more) and would love to support them forever for free. However, next to the obvious costs of providing the service, there are also non-obvious costs to the approach: skewed incentives.

As opposed to lavishly funded (mostly American) startups we’re bootstrapped. That is we only have very little resources at hand, brains & money that is. Our overriding strategic theme thus is “How to allocate scarce resources” also known as How-to-Run-A-Marathon-In-A-Straitjacket.

The matter boils down to the 3AM question*: What is my next move?

Do I invest time and resources in supporting my free user base or do I invest that same amount of time and resources in creating value for my paying customers.

No prizes for guessing what a bootstrapped startup does.

The consequence: A misalignment between free users and paying customers.

Implications for us: We decided to pursue a different strategy for our Squirro. Squirro will be offered as a try-and-buy product. The goal: Bring into line the interests of customers and us the creators of the product.

This will over the course of the next months provide us with the unique chance to compare the success rates of both models under one roof.

I’ll report back on our findings.

* It’s actually the Tuesday 10am question. That’s when we do our weekly sprint reviews and planning.