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Why Freemium Doesn't Work 321

Posted by samzenpus
from the you-get-what-you-pay-for dept.
itwbennett writes "Tyler Nichols learned an obvious but important lesson with his freemium Letter from Santa site: 'most people who want something for free will never, ever think of paying you, no matter how valuable they find your service.' He also discovered that non-paying customers are more demanding than paying customers, which only stands to reason: If someone likes your service enough to pay for it, they probably have an affinity for your brand and will be kinder."
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Why Freemium Doesn't Work

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  • by RogueyWon (735973) * on Thursday January 05, 2012 @09:09AM (#38594796) Journal

    The article raises "freemium" in a wider business sense, but I suspect that a lot of slashdotters will be used to coming across it in discussions of massively multiplayer online games.

    I'm a long-term pay-to-play MMO gamer (Final Fantasy XI, World of Warcraft and now giving The Old Republic a whirl - just made a fairly long post about my experiences with it in my journal). I've also given some of the new generation of "freemium", "free to play" or "pay to win" (pick your favorite term) MMOs a go. However, I couldn't stick with any of them for long - from my point of view, this model provides a much inferior player experience.

    It's not just about the money - though that is an issue. With a subscription based MMO, I know how much money will be going out the door on the game every month. So I pay my $15, have that as a line in my personal budget, and that's it. On a sheer time/cost ratio, MMOs tend to come out extremely well. With a Freemium MMO, I may end up telling myself that I'm going to spend a certain amount each month, but I also know that if I get stuck or frustrated, there's going to be a strong temptation to go beyond that.

    But the really key point in TFA is "non-paying customers are more demanding than paying customers". That may be true from the service-provider's point of view. But it also has implications in the MMO world for the player. A subscription model game requires a degree of buy-in and committment from its player base. The other players you meet all want to be there and are paying for the privilege - and aren't, except in extreme circumstances, going to do anything to jeopardise that. The result, in my experience at least, is that levels of vulgarity, abuse and griefing - as well as outright cheating - are much lower in traditional subs-based MMOs than in the Freemiums.

  • by davecrusoe (861547) on Thursday January 05, 2012 @09:18AM (#38594866) Homepage

    Let's not be stingy here. I second the contention that non-paying users are forthcoming with questions and reports, but I won't call them demands. The education tools (http://www.glean.org - mainly information literacy-related) we provide serve a number of schools, and some sites have heavy user traffic. All are free, but we do try to ask for donations to support our (nonprofit, 501c3) work.

    And, when the sites glitch - or don't function properly, or as expected - those same users let us know about it. Quickly!

    While few are likely to donate money to support our work, many are involved in bug reporting, formative evaluation and the testing of new education tools that we're launching. It's these kindnesses - in-kind support, you might say - that has been so valuable in helping us move forward.

    At the end of the day, it's not cash - which is needed to move the organization forward. And, yes, our free users do have expectations - not unreasonable, as they rely on our services as well, and that the site has likely set some expectations about the service(s) that will be provided.

    Of course, the lack of cash can be frustrating. However, I suggest against labeling, or reading, their expectations as demands. Instead, it's more helpful to understand how the audience is willing to help, and if/what can be done (in the case of TFA) to turn the free user base into paying customers.

    Cheers,

    --Dave

  • by SerpentMage (13390) <ChristianHGross AT yahoo DOT ca> on Thursday January 05, 2012 @09:51AM (#38595162)

    Come on get real here...

    The freemium model is a sucky model. It does not mean that freemium can't work for some. Just like how OpenSource works for some, eg Redhat, but on the whole Open Source is devastating the software development and sell model. Compare the revs of those companies that only sell software and those companies that sell or enhance or what have you with open source. The difference in monies is monumental! I am not complaining here, I am saying it as it is.

    I remember nearly a decade ago I was at SD hosting a BOF on the impact of Open Source. We danced for hours around the issue and it was a very good BOF. At the end I summed it up and we all agreed, the software developer will not make the same amount of money as they had until the 2000 crash. I stand by the statement and it was true. Since 2000 the wages of the software industry as a developer have been driven down due to Open Source, and due to out sourcing.

    Again not saying that nobody can make money. It is just that Software has become a winner take all model. Where a few make good decent money, but most struggle to make any money. I instead use Open Source to solve other problems. Makes things good for me though, but I am not creating base infrastructure software like I did in the 90's. It is what it is, and freemium is the same thing...

  • by DCTech (2545590) on Thursday January 05, 2012 @10:12AM (#38595368)
    That's absolutely correct. Zynga is taking in more money and valued higher than the whole EA and the only way MMO's have been able to battle WoW has been with free2play models.

    On top of that Valve has had huge success by making Team Fortress 2 free. The best thing about TF2 is that it doesn't even feel like they're trying to cash you. You can get everything in the game, but the game is so good that I have happily spend some cash on the store too. On top of that they have created such a good in-game economy that people are spending time on trading inside it and cashing out. And just to say it again - all of this without making the game worse or anyone feeling like they need to buy something from the store, because you can get everything via game, trading or crafting too. And the vanilla weapons are often better than the unlockable ones!
  • by Baloroth (2370816) on Thursday January 05, 2012 @10:36AM (#38595714)
    And then you have something like TF2, which not only quintupled it's player base by going free-to-play, but has a conversion rate of free players buying items of 20-30%. Lesson? Make your game fun and make the premium content a) worthwhile but b) not absolutely necessary to play the game, and you can make a lot of money. This [pcgamer.com] makes for an interesting read (like how they found highly advertised 75% off sales increased revenue by 40x for Counter-Strike).
  • by SerpentMage (13390) <ChristianHGross AT yahoo DOT ca> on Thursday January 05, 2012 @11:14AM (#38596370)

    Ok I will play ball...

    We used to have Sybase, but not much of that company exists today. Then we had Silicon Graphics, and not much of that company exists today. Then we had Borland that went away with all of its products. How about Eudora? The list goes on...

    Now you might say, "but oh oh these companies had bad business models". Not so quick. In a software industry there is always room for a certain number of players. The problem with open source is that it cuts down the number of competitors to winner takes all. So in the database arena we have a couple of big players, and the open source players. There are no more smaller binary only software vendors. Take a look at IDE's. Same thing there. Remember Eclipse USED to be a for pay product, and then it was open sourced.

    Dude, I started out in the IT industry as a profession in 92 after my engineering degree. I have been active in the software industry since the Commodore Pet. Until 2000 there was what I would call a vibrant shareware, second tier software industry. Sure you had the big players, but there were plenty of little players around. Now no more.

    I actually would agree with you that companies partially drove to Open Source to save costs. It was because software developers cost too much, which is pointing out the obvious. BUT it does not detract from my point that you can't make money like you used to as a software developer. The days of becoming another Bill Gates are gone. Remember that the Facebook guy is not selling software. This is MY ENTIRE point... He is making money not by selling software, but using software to sell something else. This is a very important distinction...

    I am not cherry picking the highest salary of 2000 as the dotcom bubble bursting. Remember that at the time there was a life outside of silicon valley. And I would argue that in silicon valley you made peanuts because you received stock grants. It was outside the valley where you made real cash. I remember I used to be able to charge 150 USD per hour, and I had friends that were Oracle large database consultants that were pulling in about 400 to 500 K in CASH... Now you would be lucky if you can pull in about 100K.

    I never implied that Open Source caused the bubble crash! I said that with the rise of Open Source which started after the bubble crash wages and the software industry changed fundamentally. I am not saying it is good, nor bad. IT IS what IT IS.

  • by C0vardeAn0nim0 (232451) on Thursday January 05, 2012 @12:02PM (#38597228) Journal

    multiboxing means having two (or more) WoW accounts playing simultaneously on different computers (or in the same computer if it's powerful enough).

    i just checked, apparently it's not against blizzard's EULA to do that.

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