I am done with the Freemium Business Model

I am done with “free”. I have come to the realization that most people who want something for free will never, ever think of paying you, no matter how valuable they find your service. I found this cold hard fact out over this Christmas holiday with my free Letter From Santa site. The site uses a freemium model allowing people to create personalized printable santa letters for their children for free. In addition to the free version, I also offered a paid version that includes a higher resolution letter, a personalized envelope and door hanger for a nominal cost.

Traffic was substantial this Christmas season, with over 120,000 unique visitors and  nearly 1,000,000 page views. The site was used to create over 50,000 free santa letters. It’s cool to know a site I built was used to bring joy to kids all around the world.

Free customers are higher maintenance than paying customers. I think it’s because they aren’t paying, they show little or no attention to directions. I focused on making the UI of the site drop dead simple and easy to use. I created a pretty thorough FAQ to answer 99.9% of the questions people might have. I even linked to the FAQ in the email response they got with their download links to the letter they created. I still had hundreds of free customers ask for help with simple questions that were answered in the FAQ. One the other side, the rate of paying customers who asked for help was much lower, under 20 people in fact.

What really made me change my mind about offering freemium was when I sent a thank you email a couple of days ago to everyone who used the site this Christmas. Many free customers flagged the email as spam! So let me get this straight, you just used my service to make something for your kid for free and then you nail me with a spam complaint?. When creating the letter, I have people agree to my privacy policy before they finish. It says I may contact them from time to time letting them know when our Easter Bunny Letters site opens for the holiday season. Basically, letting them know when they can get some more free stuff from me. I have an opt-out link on that policy page, and I included one in the email I sent right at the top, at the bottom and in the body of the email. No paying customers flagged the email as spam or even unsubscribed. Only the “Free” people were kind enough mark it as spam. This of course raises holy hell with my email provider which in turn causes me headaches.

So I am off to refactor my web app and take out the free journey and switch over to paid only.

UPDATE: This post made it to the first page on Hacker News, it’s also been Slashdotted and picked up by several tech blogs. Some of the comments have been great and informative, others not so much. Some people have made false assumptions and some I am convinced didn’t even read what I wrote. This is MY experience with freemium. I am not condemning the concept for everyone. If freemium works for your business, that’s great.

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112 thoughts on “I am done with the Freemium Business Model”

  1. Excellent article, Tyler. For the reasons you list, I completely agree with you. I think people have gotten so used to free things on the net, that they assume it’s a *right* to use your services free.

  2. Tyler, at least you have learned something from this experience, you have tried it, know it’s not what you want to carry on doing and you know why.

    I personally wont be using the freemium business model when the times comes.

  3. Great post. Mark Cuban had a post a few years back about the Freemium model as well.

    I believe in the next few years if not faster, freemium will fizzle out. People will grow tired of proving all this work and service to people, and not only get nothing for it, but incur costs to keep it up. In addition, people do not appreciate free items. I’ve worked on sites that got millions of hits which were free, and the lack of thank you/appreciative e-mails from users of the site was astounding.

    Another reason I think freemium will die and we can get back to old fashioned capitalism is that web advertising is not paying what it used to. It seems years back, if you had 30,000 or so hits, you could make some decent advertising cash. Now, it seems only the sites who get millions of hits have any chance at making advertising money.

    Besides, money is the ultimate motivator to stay fresh, sharp, and have a great product. You see this with certain free sites that run out of ideas, or motivation, to keep the site’s features going.

    Great post!

  4. I enjoyed your post and agree wholeheartedly. I’m
    bombarded with customers that want freebie work, and it’s always a major pain.

  5. Hey Tyler,

    Good post!
    I think it worth stating that if you’re running a business model without validating it with consumers, it will always be more of a gamble than if your decisions are data-driven.

    Did you do any research into whether people would pay for this service? And what they would be willing to pay for, contrasted against what they expect to be free?

    Often, a large portion of the functionality would be given for free. The premium plans are generally for functionality that not everyone needs and should they need it, would be willing to pay for it (It adds enough value to validate the purchase)

    It’s not a fact that if you do your research, it will work. I think it definitely is, that if it doesn’t work, you will know why.

    Just my two cents.

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