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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 blahplusplus (757119) on Thursday January 05, 2012 @09:07AM (#38594774)

    ... seems to contradict his argument. The game is free to play but there are aspects of the game that are enhanced if you pay.

    • by Anonymous Coward on Thursday January 05, 2012 @09:26AM (#38594932)

      No no no, the major companies making millions of dollars on Free2play games don't count. One guy with 100k customers offering shitty PDF downloads of something anyone could make for free with with basic knowledge of Microsoft Word didn't make as much money as he wanted and had to answer hundreds of emails, so therefor freemium is dead.

      • Re: (Score:2, Interesting)

        by SerpentMage (13390)

        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 wa

        • by Enderandrew (866215) <enderandrew.gmail@com> on Thursday January 05, 2012 @09:55AM (#38595218) Homepage Journal

          I believe Zynga took in more money than EA this past year. And a couple years ago Zynga didn't even exist. EA has been scrambling to copy Zynga's freemium model.

          MMO after MMO that was losing money have switched to freemium models and become more successful than they ever were with premium models.

          And companies like IBM, Google, etc. make billions on the back of open source software. But clearly you're right that this is the exception and can only work in a handful of cases. They must only succeed out of dumb luck, because the model itself can't possibly make any sense. Companies like Google don't know what they're doing.

          • 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 JoeMerchant (803320) on Thursday January 05, 2012 @10:24AM (#38595536) Homepage

              Anybody notice that WOW is free to play up to level 20 now?

              For WOW junkies, level 20 is laughable, but for people who have never played before, do you think 20 levels is enough to get you hooked?

            • by VGPowerlord (621254) on Thursday January 05, 2012 @10:38AM (#38595744) Homepage

              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!

              Actually, F2P users can't get hats unless they're promotional hats they get from purchasing another game. You're also limited to a 50 item inventory (not counting the 27 stock items).

              Your inventory will increase to the standard 300 items once you buy a single items from the in-game store. Meaning that buying a $0.49 weapon or $0.99 class starter pack, then spending the other $4.00-$4.50 (Steam Wallet makes you add $5 minimum) on another Steam game.

              Note: The amounts are different in other currencies.

          • by JoeMerchant (803320) on Thursday January 05, 2012 @10:23AM (#38595518) Homepage

            Nothing new here:

            Give away an $8 razor for $2.99 and sell the $0.02 blades for $0.25 each.

            Give a non-user a taste of smack, or two, or three, then start charging after they are hooked.

            Analogies about sex and marriage might be seen as in bad taste, but the same principle applies:

            Give it away until they "need it," then charge some seemingly reasonable (but usually highly profitable) price for it later.

            Open Source doesn't do that, but many of the most successful business models throughout time have.

          • by Anonymous Coward on Thursday January 05, 2012 @10:37AM (#38595736)

            Zynga's revenue for 2011 was roughly 1 billion:

            http://blogs.wsj.com/venturecapital/2011/12/15/so-whats-zynga-going-to-do-with-all-its-cash/

            EA's revenue for 2010 was roughly 3.65 billion, with roughly 800 million in 'digital revenues':

            http://en.wikipedia.org/wiki/Electronic_Arts

            So Zynga took in less than 1/3 what EA did this past year, still impressive, but quite far from beating EA so far.

            • by Registered Coward v2 (447531) on Thursday January 05, 2012 @12:42PM (#38598066)

              Zynga's revenue for 2011 was roughly 1 billion:

              http://blogs.wsj.com/venturecapital/2011/12/15/so-whats-zynga-going-to-do-with-all-its-cash/

              EA's revenue for 2010 was roughly 3.65 billion, with roughly 800 million in 'digital revenues':

              http://en.wikipedia.org/wiki/Electronic_Arts

              So Zynga took in less than 1/3 what EA did this past year, still impressive, but quite far from beating EA so far.

              In addition, revenue does not equal profit. What would be interesting was the net profit, how it was calculated, and the margins.

          • by bkaul01 (619795) on Thursday January 05, 2012 @02:17PM (#38599768)

            And companies like IBM, Google, etc. make billions on the back of open source software. But clearly you're right that this is the exception and can only work in a handful of cases. They must only succeed out of dumb luck, because the model itself can't possibly make any sense. Companies like Google don't know what they're doing.

            Google makes its money selling advertising; the software just gets eyeballs to the ads. IBM makes its money selling servers, supercomputers, infrastructure services, microchip designs, etc., not selling software to end users. Do they use open-source software? Sure. But open-source software isn't their product, as such. It's not what people are paying them for.

            • by mjwx (966435)

              IBM makes its money selling servers, supercomputers, infrastructure services, microchip designs, etc., not selling software to end users.

              Spoken like a man who's never licensed AIX.

              Companies like IBM support Open Source because their customers demand it. IBM can prevent Linux from running on their System X and System P's forcing customers to license AIX or Windows but it would be suicide for the System P's and near suicide for the System X line. Even Microsoft has to support FOSS programs in Windows, why, because MS's customers demand it.

        • by Anonymous Coward on Thursday January 05, 2012 @10:28AM (#38595600)

          I really don't think it's a sucky model at all, I actually think it's a great model. It gives customers two very important things: the ability to try before they buy and the ability to pick and chose what they want based on itemized cost. People complain that it's "dishonest" because they use the word free but you end up spending money, but that's because people are stupid. Almost everything on a Freemium model is upfront about the fact that they are not a charity and some parts will cost money. Except instead of having to give a pile of money upfront for things you may or may not want, you get to give things a try for free and, if you like it, spend money on what you want to spend money on as you use it. That said, it's not a miracle or a catch all, there are a lot of ways it can fail:

          1. Pay2Win, or the non game equivalent where the free version is a useless, crippled piece of crap that's not suitable for anything. People see through this cheap ploy pretty quickly and generally just develop an extremely negative association with the product, and the company would have been better off without the free version.

          2. Macrosized microtransactions. This one is interesting, in that we still haven't really found where the line is. People buy $15 dollar virtual hats for Team Fortress 2, but then get angry over a $10 price tag on a DCUO expansion. In the non game world it gets even murkier, and I don't think has been explored very much yet. For example, how many people here have upgraded the size of their GMail inbox? Is it overpriced? Underpriced? I have no idea.

          3. Your product sucks, like this guy. As I said, the Freemium model isn't a miracle. A great business model on a bad product is as useful as a nice tuxedo on a pile of dog shit. See also, Hotmail. Although, interestingly enough, it would appear that you can put out a pretty crappy MMO in the Freemium model and make a lot more money than a mediocre MMO with a subscription model.

        • 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 grumbel (592662)

            And then you have something like TF2...

            The problem with examples like this is that the game already had a regular successful commercial run four years ago. It already made it's money back long before it went free to play. Same is true for many MMORPGs, they only went free-to-play after they stopped making money via regular subscriptions and as a MMORPG needs players to function, free-to-play is simply an alternative to revitalize it for a little more before it's completely dead.

            • by Baloroth (2370816)
              LOTR online made shit-tons after it went F2P and was (as I understand it) on the brink of failing before that. Regardless, F2P games need constant development after they go F2P to produce more money, and that development is not free. And many can succeed never being pay-to-play (League of Legends, for example). It works as a model, developers just need to learn to do it properly.
        • by chrb (1083577) on Thursday January 05, 2012 @10:45AM (#38595840)

          OpenSource works for some, eg Redhat, but on the whole Open Source is devastating the software development and sell model.

          Name a single software company that has been "devastated" by Open Source? As opposed to, say, failing to adapt their business model to a changing world, and increased competition from others? I can see the argument that companies like Sun lost out to Linux in the operating system market, but Sun was a hardware vendor (same with all of the Unix vendors really). There is an important difference between "competing in the market" and being "devastated". Competition is a reality, and perhaps these companies would've fared just as bad against a non-open source competitor?

          Since 2000 the wages of the software industry as a developer have been driven down due to Open Source, and due to out sourcing.

          You are cherry picking the single data point with the highest salary - the 2000 was the peak of the .com bubble, [wikipedia.org] and y2k migration projects. Open source didn't cause the .com bubble/crash or y2k migration issues. Correlation is not causation - maybe the rise in open source usage was driven by companies looking for savings following the crash, rather than the crash being caused by open source, or perhaps there were more important factors at play?

          • by SerpentMage (13390) <ChristianHGross@yah o o .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 mvdwege (243851) <mvdwege@mail.com> on Thursday January 05, 2012 @12:24PM (#38597672) Homepage Journal

              All three examples you cite were killed by Microsoft, 2 directly, one indirectly. Open Source had nothing to do with it.

              Mart

            • The problem with open source is that it cuts down the number of competitors to winner takes all.

              This was always the case with the software industry. Always. Entrenched monopolies in a field are impossible to remove. The industry has only ever gotten around this by creating entirely new fields out of nothing and continuing the cycle from there.

              Until 2000 there was what I would call a vibrant shareware, second tier software industry.

              Oh god. Those horrible little fly by night operations? The companies that wo

        • by slim (1652) <john AT hartnup DOT net> on Thursday January 05, 2012 @11:05AM (#38596208) Homepage

          Come on get real here...

          The freemium model is a sucky model. It does not mean that freemium can't work for some.

          If it works for some, then by definition it's not a sucky model. It's just not a magic bullet that works in every circumstance.

          Just like how OpenSource works for some, eg Redhat, but on the whole Open Source is devastating the software development and sell model.

          Because the wellbeing of the software-as-a-saleable-item market is not a success criterion for Open Source.

          If my refrigerator manufacture business is a disaster for your "importing ice from the Arctic" business, that doesn't mean that mine is a sucky business model.

      • by AnonyMouseCowWard (2542464) on Thursday January 05, 2012 @12:00PM (#38597190)
        He didn't even say he didn't make enough money... in his comments section, he points out that most of his paying customers were free users first. That to me means freemium works, even for him.

        His biggest complaint about his whole experiment seems to be that his "free" users marked his mail as spam. However, one thing stands out: to use his site/service, you have to agree to a TOS, in which he mentions that he might send you mails. There is no opt-out button. That's worse than a sneaky default spam mail with a well-hidden opt-out checkbox... in his case, there is no such checkbox. You want to use his service? Then you agree to his spam. To me that means his service is not free, but hey, maybe I value my privacy more than a letter to Santa.

        I understand he put hours and money into creating and hosting his site, but that does not entitle him to believe his mail is important, especially when there is no option to opt-out in the first place... and the fact most of his paying customers were free users first points to the fact he's just whining for whining, and doesn't understand what "freemium" means.
    • by gl4ss (559668)

      look, if you're thrifty or want free stuff. you wouldn't be playing those games in the first place. nothing free about them, quite the opposite. so those who are playing them are thinking about paying quite a lot, in fact the whole time they play they'll be thinking about money and if to spend it on some stupid in-game product or not.

      • by deains (1726012)

        look, if you're thrifty or want free stuff. you wouldn't be playing those games in the first place.

        Wait, what? Haven't you even heard of FarmVille?

      • by fedos (150319)
        Actually, the few times that I've actually purchased in-game content for a freemium game I spent more time thinking about whether I really wanted to make the $5 purchase than I have for some $50 games.
    • by Mad Merlin (837387) on Thursday January 05, 2012 @09:36AM (#38595010) Homepage

      Multiplayer games also benefit greatly from network effects. Nobody would play WoW if they were the only one on the server.

      If you don't have a 9 figure marketing budget, you're probably struggling to get more players, and as mentioned already, most multiplayer games aren't fun without a lot of other players. So keeping that in mind, why would you go and shoot yourself in the foot by turning away 90% (or probably more) of your potential users by requiring payment up front?

      For example, Game! [wittyrpg.com] is free to play and has been played by thousands of people, it also has a marketing budget of $0. I can only imagine if I'd required payment up front it'd probably have been played by dozens or maybe hundreds instead. That's a pretty big difference.

      Unsurprisingly, people have been conditioned to expect things for free on the Internet. Making the jump from free to a penny is much larger than the jump from a penny to $10 or probably even $100. People will spend $5 on a latte every day and think nothing of it, because nobody is giving away free lattes, but ask them to spend $5 to access a website and they'll balk, after all, there's all those other websites that they can access for free.

      • by stewbacca (1033764) on Thursday January 05, 2012 @09:44AM (#38595078)

        Nobody would play WoW if they were the only one on the server

        Oh gawd how wrong this is. I played WoW despite the thousands of morons on my server. The average intellectual power of random WoW player is pretty much indiscernible from the NPCs. Often the only way to tell the difference between the two is the NPCs frequently have a big yellow exclamation point above their head.

      • by arth1 (260657)

        Multiplayer games also benefit greatly from network effects. Nobody would play WoW if they were the only one on the server.

        That's the only way I would play WoW.

      • by arth1 (260657)

        People will spend $5 on a latte every day and think nothing of it, because nobody is giving away free lattes,

        Um, many workplaces do. Granted, you have to be smart enough to figure out how to use the espresso brewer and the steam attachment, but if you aren't, why did they hire you?

    • by tbannist (230135) on Thursday January 05, 2012 @09:37AM (#38595026)

      Even worse, Tyler Nichols contradicts his own argument. If you read through the comments on his blog you find that he eventually admits that nearly 100% of his paying customers tried the free version before paying, thus the first part of his premise is wrong. Most people who tried the free service didn't pay him, but enough did that he was considering keeping the site going as a pay only site. So his evidence contradicts his premise that freemium doesn't work. Instead he presents evidence that some businessmen are so wrapped up in their own indignation that they can't recognize a business model that's actually working as intended for them.

      His biggest problem seems to be that his unsolicited marketing email was marked as spam (because it is spam). The best solution to that problem is either to accept that the free people may not even remember your site a month after they use it and expect some of them to flag it as spam, or to only send email to people who upgraded to the paid version. They're the people most likely to pay for his related easter site, anyway.

      • by rtb61 (674572)

        The reality is any tech minded people will look at a site like that or the email greeting card sites as what they are, data and email harvesting sites of the worst order. Generally speaking the only time you want to make use of anything like that is from a site that already has your details and you are aware of the privacy laxities, no need to add another to the list.

      • If you read through the comments on his blog you find that he eventually admits that nearly 100% of his paying customers tried the free version before paying, thus the first part of his premise is wrong. Most people who tried the free service didn't pay him, but enough did that he was considering keeping the site going as a pay only site.

        Like you say, this sounds like is kind of did work as intended. He snagged enough paying customers with "free" that the paying customers would possibly make a working customer base.

        But here's where I think a lot of people go wrong in thinking about these things: They create a "free" thing, note that lots of people take the "free" thing, but nobody pays. They conclude from this that people like their product, but won't pay *because* they have the free version.

        The truth is more complicated. People may li

        • by delinear (991444)
          He even solved his own problem of how to justify the cost by saying the free users were more demanding and take up more support time. Only offer support for the paying users and to everyone else make it clear that the product is offered "as is". That's been successful for a lot of open source porjects - supporting the world for free is a fool's errand, he could easily set up a support mail and whitelist those who have paid for the product and in one move both reduce his time spent and add an incentive for u
    • by Liambp (1565081)

      It is true that gaming companies have refined the premium model to a fine art AND many of them are making good money out of it. They use all kinds of hooks to entice you into paying and to keep paying once you have made that first purchase. Even so, from what I have read it is generally accepted that 90% of your customers won't pay a dime so you just have to get enough revenue from the 10% who will. Personally I am quite uneasy about this aspect of freemium because by design the few paying customers have to

    • Skype is Freemium. You can make free calls from user to user, but if you want to call traditional phones you need to pay extra. If you want a traditional phone number you also pay. Seems to work.

  • 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 DCTech (2545590)
      Free2Play games aren't bad per se, but the companies making them need to take correct approach to it. Team Fortress 2 is one of the greatest examples of a good F2P game. The game itself is free and apart from cosmetic things (hats), you can get every item in the game by just playing or trading. But still it makes Valve money because people are also lazy and just buy the item they want for a few dollars from the store.

      If you play the game more you might be interested in buying those hats too. It's a ridicu
      • by RogueyWon (735973) * on Thursday January 05, 2012 @09:34AM (#38594998) Journal

        That's true, but ultimately, TF2 is in a differerent marketplace to the MMOs I play. Despite a degree of character-persistence, it's an fps at heart, not a MMORPG. As such, its competitors are the Battlefield and Modern Warfare games.

        I tried about 10 minutes of MW3 on a public server. In the space of that time, I learned 14 new descriptive terms for body parts, 12 new racial slurs, detailed descriptions of 15 new acts that consenting adults might conceivably (though improbably) choose to perform together and more than 300 different ways of spelling and pronouncing existing obscenities.

        I crawled back to Dark Souls, both for the blessed silence that permeates so much of the game, and the sense that I was playing a game that just hated me slightly less.

    • by ShakaUVM (157947)

      The freemium model is apparently working very well for a lot of MMORPGs and Facebook games. That said, I have little desire to play MMORPGs any more, and even less to "pay to win" at something I don't really care very much about. I actually subscribed to D&D Online after it went free to play for the reasons you outlined above (you know exactly how much you're going to spend, and all the freemium options worked out to a lot of money anyway), but the game permanently bugged my character, and I couldn't pl

      • by neokushan (932374)

        I think Free2Play and Freemium are very similar, but not quite the same thing. Free2play generally involves microtransactions that you can opt for, with many games practically requiring them if you don't want to waste your life grinding.

        Freemium implies that the product itself is totally free, often funded via other means (usually ads). Freemium does work, freemium magazines have had success stories all over the place where traditional mags have been dying off due to the internet.

        In fact, one could argue th

        • Freemium is a mix of free and premium, which means it is supported by micro-transactions or a percentage of the customers paying a subscription.

          Freemium does not mean free for everyone, but supported by ads.

    • You apparently haven't played Lord of the Rings Online since they went F2P, or possibly even DDO. Neither of these, in my experience suffer the problems you describe, and both are doing quite well as fun and friendly F2P enterprises.

      • by RogueyWon (735973) *
        I tried LOTR:O for a short time after it went free to play, just to see how it was working out (I'd been a subscriber for a short time in its early days). I didn't stick with it for more than a day, though - in this case because it didn't feel distinct enough from WoW in any particular way to compensate for the fact that it was so obviously less polished than WoW.
    • by bertok (226922)

      Gah... don't get me started!

      Team Fortress 2 has recently become free-to-play, and it's now suddenly full of 13 year olds with hacks, and there's nothing you can do about it. Before, you'd just get their Steam ID banned, and that would be it. Now, they just create a new free account, log back on right away, and continue griefing like nothing happened.

      Mind you, that still takes some effort -- they have to register for a new Steam account, and possibly even change their CPU ID, but as long as there's no financ

    • Not to mention constantly worrying about what might be free, what isn't, and what is just a tease for premium content really takes you out of the game. Now instead of just exploring/playing how you want, you have to sit back at every decision point and ask whether or not x is worth spending money on, doesn't sound particularly enjoyable to me.
  • For 1 data point (Score:5, Insightful)

    by Zoxed (676559) on Thursday January 05, 2012 @09:10AM (#38594806) Homepage

    So 1 site gets it wrong, and the whole model is broken ?
    I think not !!

    • Yeah. I don't have figures on hand but apparently Team Fortress 2 has been making wheel-barrels full of money for Valve since going F2P.
      • Re: (Score:2, Informative)

        by Anonymous Coward

        It's "wheelbarrow", from "barrow", "a small vehicle used to carry a load and pulled or pushed by hand."

        http://en.wiktionary.org/wiki/barrow#Noun_2 [wiktionary.org]

        (Barrel / cask / keg / drum / etc is the large cylindrical container for storing beverages, chemicals or, historically, certain foods)

    • by chrb (1083577)
      Yes, some flawed statistics here. Mr. Nichols doesn't actually say how many paying customers he got, but then talks about a "rate" of under 20 asking for help. Without knowing what the total figure was this is impossible to evaluate. It also appears that he was charging for things that offered little extra benefit - a higher resolution image of the Santa letter. He concludes by saying he will switch the site to pay only - good luck with that.
    • Shocked! Absolutely shocked I say that people would gladly accept a letter from Santa wizard when offered for free, but question is value if asked to pay for it. I don't see how on earth he came to the determination that people highly valued a Letter from Santa wizard? I call bullshit. Perhaps he asked in a follow up questionnaire. Sure people will respond favourably when there are no strings attached. But I wouldn't pay a dime for that service. 5 minutes with google images & Microsoft word and I

  • by gatkinso (15975) on Thursday January 05, 2012 @09:15AM (#38594834)

    Seriously.

    I can think of examples where Freemium works (EVE, JIRA).

    • My first thought as well. From what I can see, all you get is just a printable letter with a colourful background, something that can be knocked up in Photoshop, MS Word or even Paint in about 5 minutes. Unless I have missed the point entirely, I am not surprised nobody paid for this.
    • by dfm3 (830843)
      TFA doesn't explicitly state how many paying customers the site had (at least 20), or how much the paid service cost, but obviously there's a small niche there.

      You or I may not see the need to use a website to design a letter from Santa because we're probably more adept at using our own tools to accomplish the task. I can easily fire up a word processor, find a template and a few clipart images, and create a Santa letter in just a few minutes. Most "average" computer users I know would probably need an h
  • 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 Captain Hook (923766) on Thursday January 05, 2012 @09:19AM (#38594882)

    'most people who want something for free will never, ever think of paying you, no matter how valuable they find your service.'

    Just how valuable is a gimmick letter template with some cheap clipart background images which you have to print out yourself?

    The final product is something that could be done with any word processor in about 10 minutes.

  • by nagarjun (249852) on Thursday January 05, 2012 @09:21AM (#38594888)

    From Forbes magazine's Nov 2011 edition [forbes.com]; emphasis mine:

    [Dropbox] has solved the “freemium” riddle, with revenue on track to hit $240 million in 2011 despite the fact that 96% of those users pay nothing. With only 70 staffers, mostly engineers, Dropbox grosses nearly three times more per employee than even the darling of business models, Google. [CEO Drew Houston] claims it’s already profitable.

    • by dbIII (701233)
      It's truly a paradox that something which is flawed on so many levels is so successful. I don't know how many stories there have been here alone about how they've made false claims about security and have failed so badly that even plain FTP is far more secure. Perhaps they are being dishonest in other areas as well in order to appear far more impressive to potential investors?
    • by mapkinase (958129)

      Apples and oranges. Profitability per person predictably drops for large companies.

    • Dropbox is essentially just a middleman for Amazon s3, their entire business model depends on Amazon(or another provider) continuing to remain cheap forever, maybe a good business model but tying your fortunes so closely to another company like that seems like it's just asking for trouble.
    • Mailchimp did it too: http://blog.mailchimp.com/going-freemium-one-year-later/ [mailchimp.com]
  • The summary cited MMOs as why us Slashdot geeks would argue freemium works.

    Wrong. GaiaOnline. GaiaOnline makes a whole crapload of money for their in-world virtual currency. I don't think it qualifies much as a game.

    Why Freemium doesn't work is because your "free" service isn't good enough for people to buy into the "premium" part(I'd say that it's also possible for your free to be so good you don't feel pressured into buying the premium product; but I suspect this is rare). That's why Dropbox, Gaia, MM

  • Results (Score:4, Insightful)

    by Aladrin (926209) on Thursday January 05, 2012 @09:24AM (#38594910)

    "Results? Nichols found free customers are higher maintenance and more demanding than the paying customers. 20 or so paying customers asked questions while "hundreds" of free ones did. And when following up, paying customers never flagged his emails as spam, while many free customers did, and complained."

    The numbers mean nothing if we don't know how many paid and how many didn't. I think 20 to "hundreds" is probably a good ratio for paid-to-free in the first place.

    As for the spam, if you didn't ask for an email from a free service, and it appears to be advertising something (like his premium services), I think spam is a good label for it. I personally wouldn't flag it as such, but I understand those who would. Without seeing the exact email, it's hard to know why they might do it, though. And the paying customers... Were they annoyed by the email, too? Did they get the same email? How did he know which of the 2 flagged it spam or not? Merely the complaint emails?

    In my experience, it's all fine and good to have free customers, so long as you keep them away from your paying customers and don't let it affect them negatively. Free customers really are more demanding. For some reason, they seem to feel you owe them something. It seems to be a bell curve with each end being more entitled, and the middle less so, approximately centering on the market value of the product.

    • by jbolden (176878)

      Remember the email was generated after a period of time. And many of them likely had to create multiple accounts to bypass the one letter restriction.

      They likely didn't even remember getting the email from the paid service.

  • After going to his site, it looks on the surface the only thing you pay for is to create more than one 'letter'. This seems like a terrible example of 'Freemium' because there really isn't a lot of room for many potential customers who would want just one to pay for anything. Maybe I'm missing something....

    Freemium usually manifests as ad-supported and/or 'the first hit is free' with priced DLC/in-game items. I've heard varying degrees of success brought up, but on the whole a more positive perspective t

    • by jbolden (176878)

      Which may be the genesis of the spam complaint. He has a bunch of free customers who gave him a 1/2 dozen email addresses to generate more than one letter and saw it as spam when they got a 1/2 dozen emails.

  • This guy wanted to sell a worthless product and then blames it on the payment model when he failes. The only lesson from it is that people won't pay for shit.

  • BS (Score:5, Informative)

    by Tharsman (1364603) on Thursday January 05, 2012 @09:26AM (#38594930)

    After reading the article, the only "evidence" that the Freemium model does not work is that free users that got his "thank you" email flagged him spam. I bet he also attempted an upselling on that thank you email. People that get stuff for free tend to be very picky about getting emails even reminding them they can get a paid version.

    Anyways, what he described is not even "fremium"; it’s a free edition of the site and a paid edition of the site. Freemium is a model where the product is entirely free and additional gimmicks or features are unlocked by micro-transactions (like 99c for extra Santa card layouts.)

    Anyways, non-story, yada yada.

  • I absolutely agree (Score:4, Insightful)

    by craftycoder (1851452) on Thursday January 05, 2012 @09:27AM (#38594944)

    I will not engage in the this freemium model anymore either. Not only do the freeloaders ask for more support than do customers, they bad mouth your product more as well. I believe the process of transferring money from customer to merchant gives the customer a sense of "buy-in" in the product. The customers value it more because they are invested in it. Invested customers then feel MORE willing to invest time figuring out how to use it than do those who get it for free. It sounds counter-intuitive certainly, but I have lots of anecdotal evidence to support this in my career experience. The proof is in the pudding though. The higher I set the price of software in the app store, the happier my customers are with the product. Go figure!?!?

    • by jbolden (176878)

      That's common in most things, behavior changes belief not visa versa. And it is very counter intuitive.

    • I will not engage in the this freemium model anymore either. Not only do the freeloaders ask for more support than do customers, they bad mouth your product more as well.

      Yes, it's the first-world problem frequently seen any time Facebook changes their UI.

  • If you've done anything more than once you know people don't read what you post. I suspect his real anger is the number of people using the service for free compared to those that paid. Just in case someone else goes on one of these ventures...

    The geek in the family uses it for free. He/She then tells brothers, sisters, grandma, and grandpa. He/She tells them the process. Those people then pay. The he/she that asked questions and got back, "It is in the beautiful FAQ I lovingly wrote. IOW Please feel

  • 'most people who want something for free will never, ever think of paying you, no matter how valuable they find your service.'

    The flaw with this statement is that pretty much everyone would prefer to have services and goods given to them for free. And while I do enjoy(ed) many free services, some were valuable enough and reasonably priced enough for me to want to upgrade or donate.

    Other services just were not valuable enough for me to want to pay for, or there were alternatives that were better, or stayed free, or the licensing terms were so onerous that it just wasn't worth the time and money.

    Pile on top of that, there are many m

  • Maybe a "higher resolution" letter from Santa for paying customers is just a stupid idea and this has nothing to do with the fee/paid business models?

    A bad product fails, regardless of price (with a few exceptions, things like Internet Explorer).

  • that's his problem right there.
    besides, his customers did provide him with 50k unique letters from santa.

    but really his business model would have been better if he had said that his giving the profits to charity and pocketed the usual 10%.

  • by Lumpy (12016) on Thursday January 05, 2012 @09:54AM (#38595200) Homepage

    You never offer tech support to free customers. Spell that out.

    "Free customers get ZERO tech support, your questions will go unanswered, you will have access to the WiKi for common answers."

  • Even in 2012 online payments are a pain in the ass. I have to leave the site, log into Paypal, punch in my credit card number if it's not stored, then head back to the site to complete the transaction.

    The problem is that this is a hassle. I hate doing this. If the site used Google Wallet, well, I am almost always logged into Google anyway, and I'd never have to leave the site. Then maybe.

    Amazon makes buying easy, iTunes makes buying easy, the Android Market makes buying easy. These are the places I buy from

  • He did it wrong (Score:4, Informative)

    by drinkypoo (153816) <martin.espinoza@gmail.com> on Thursday January 05, 2012 @09:57AM (#38595238) Homepage Journal

    Send non-paying customer questions to a queue that you look at "if you feel like it" and give paying customers a different address (or mechanism!) for support, maybe even a unique one so you know if they've given it away. Problem solved! You can glance over the queue to see if there's any improvements you should make, without having to actually respond to any of that email.

    Hilariously, ITworld registered me but I still don't know if they took my comment. When a site is even more incompetent than slashdot you wonder WTF.

  • Q.E.D. (Score:4, Insightful)

    by mapkinase (958129) on Thursday January 05, 2012 @09:58AM (#38595252) Homepage Journal

    Poor people are stingy and mean. In the Western society, divorced from any sensible unsociopathic ideology, that's the rule.

    There is no intrinsic good quality in being poor. All the good qualities associated with people in financial struggle come with conjuction with their non-materialistic beliefs - mainly, religion, education, upbringing.

    The job ALWAYS has to be paid. You can right a piece of software and put it out on sourceforge for free - that's personal entertainment. Support, bug fixing - ain't entertainment, it's hard work, and it should be paid.

    That's how open software works - code is free, but support is not.

  • by mmalove (919245) on Thursday January 05, 2012 @10:00AM (#38595266)

    I've seen Freemium work, but as a model you have to truly understand the up and down points. It tends to work best where socialization is part of the service you're selling. IE if it's easier to send cards to someone else that's also a free member, then there's an inherent value to having someone as a free member even if they never spend a dime: they attract and create loyalty in other potential paying customers.

    This is why so many MMOs have latched onto the concept, and why it works for farmville and such. People only engage in these games because their friends also play: as solo experiences they are terrible and will quickly bleed customers.

    In short, freemium probably isn't a good model for his service if he's looking to make money, but the model should not be altogether disregarded. In some markets, it's very useful, and those ignoring it will be quickly undercut and eliminated by those employing it successfully.

  • Never... ever suggest they don’t have to pay you. What they pay for they’ll value. What they get for free they’ll take for granted and then demand as a right. Hold them up for all the market will bear. -Lois McMaster Bujold
  • Maybe the problem is his business model: he's offering a service that is already available for free [canadapost.ca]. Canada Post had 9,000 volunteers [canadapost.ca] responding to Santa's letters and emails last year. If his competitors offer a similar or better service for free, why would he ever expect anyone to pay for his?
  • by urdak (457938) on Thursday January 05, 2012 @11:47AM (#38596940)

    While he makes some interesting points, I think he misunderstands the spam issue, and why his users, especially free users, rightly marked his mail as "spam":

    If I look at spam I get, some of it is "random" spam. E.g., someone I never heard of trying to sell me viagra, or asking me to help smuggle $10,000,000 he stole while being the president of his country. But a growing percentage of the spam are people who confused a one-time business relationship with my desire to read all about them and their products for the next 20 years. E.g., I'm constantly getting mails from a particular hotel I once stayed at, mails from some company I once bought from, etc. People *hate* that, and it doesn't really help that they once used your services - they still hate the spam.

    But why did free users complain more? That's easy: Every paying user remembered you and your service, and most of them "forgave" the one time "thank you mail" (but be warned, they won't so easily forgive repeated annoyances). From the free users, a lot of them probably don't even remember what service you provided them. Heck, it is possible that half of them never even fully used (e.g., didn't even complete a card) or didn't enjoy your service, and you don't know that. These people have no recollection who you are, and thought that even a "thank you" letter was an outright spam.

    What should you do about the spam thing next time? Don't make the "I want to get mails" checkbox hidden in some long form and default to on. You have two options - either make it default to "off" (so only people who REALLY want to get your mails will get them, but be warned that few people will actually want that), or, if you want it to default to "on" make a very very clear screen which basically says "I'm giving you this service for free, in exchange for the right to mail you in the future. If you do not agree, or would consider such mails to be spam, please do not use this service.".

  • I have a long-term experience to relate. I'm already in an area that doesn't pay -- I'm a composer.

    My Bathory Opera site [bathory.org] has been around a very long time and gathered lots of goth, vampire, and opera fans. Over the years I'd diligently answered their emails, provided research, and generally made it a useful site. So when it was finally time to produce the opera for about $25,000, I began fundraising. Of the 1,700 on my email list for the site, exactly five made contributions. The funds were raised from about 140 others (plus out-of-pocket) and the opera was eventually produced for about $27,500 (October 2011).

    Many others then said, oh, yes, as soon as the DVD comes out, I'll get one (add lots of "!!!!!!!"). It's been available for two weeks as a physical copy with an opening night souvenir book or as a download. Sales: 1.

    Yet these same folks continue to write, ask for information, photos, evaluations of their latest Bathory plays, etc. As long as their entertainment costs nothing, they're happy to play along.

    Dennis

Money is the root of all evil, and man needs roots.

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