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. Agreed, freemium is so overused its become hard to make money online as SaaS. It seems like you built the christmas letter site for fun, but if I wer’re to approach it as a serious business venture I would charge off the bat while you’re validating your concept. No better validation than a bunch of early visitors reaching out to give you cash.

    Great article!
    Don’t take the spam flags personally, people dont read privacy policies and use the spam button simply as a means to avoid clutter in their inbox.

    1. Thanks for the comment Mike. The spam flags really got my blood boiling, but your are right. A lot of these people are AOL’ers… they probably don’t have a clue what pressing the spam button does to the sender.

      1. I too have found huge problems with those using aol.com simply clicking “Spam” to clear out their mailbox. Our solution was simply: We don’t accept aol.com email addresses on our services (yes, we’ve collected data; almost no one who pays for anything we provide actually uses aol.com email addresses, just those who are looking for something for free).

      2. For first-time mailings, you need to put the opt-out at the top and make it compelling to prevent as many people as you can from marking as spam. I’ve even seen “We are unsubscribing you from our mailing list, please click here to confirm.”

      3. I’m not an AOL’er and I use the SPAM button to clear up my inbox. It’s faster then clicking on the unsubscribe link if there is one

        1. @tonio09

          If you do that, you are the customer of hell.
          Why would you classify something as spam if you requested a company to send you email? You are playing with people’s jobs her!

          1. @DennisG

            >if you requested a company to send you email

            Most email is opt-out, not opt-in. Many sites don’t offer the opt-out on the sign-up form. All sites are different. It’s easier to say SPAM than it is to manage each individual site’s contact preferences.

            1. That’s like saying it’s easier to piss on the street than use a loo – they used to do this during the middle ages, you know.

  2. I’ll can’t see myself offering Fremium for one reason – how I use web sites. I consider myself typical and here is what I think:

    If a site has a free plan, try it. If I have to upgrade to a paid plan to do something I need to, find another competitor with a better free plan, or adjust how I’m using it to stay with the free plan.

    In short, I *can’t* pay for your web site because you have a free plan. I think there are lots of people like me.

    jeff

    1. Yep, I have always said that open source (I mean really free as free beer) and freemium software can easily incurs in deflation (http://en.wikipedia.org/wiki/Deflation). Customers always looking cheaper alternatives with no money circulating… The more I feel this, the more I agree with Apple, Microsoft and Oracle…

  3. I actually largely agree with your premise; free plain sucks from the service provider’s perspective – but I disagree with your reasoning here.

    You have an *opt-out* policy for marketing email. The only possible reason you have made this “not opt-in” is that you hope users will leave the “default”, leaving you with a bigger mailing list. Unfortunately that is a “dark” technique of UX design, and you are seeing the result (your email being marked as spam.)

    1. Thanks for your comment. There is no dark technique at play here. There is simple to understand checkbox at the end of the journey and a link to the privacy policy. That is not an opt-out policy. By checking the box, they opt-in. Also, a ton of these folks signed up directly through my email provider signup form that is on my site. I am not an email marketer, so my list size makes no difference to me. This list is only to notify people when my other sites (also free) open.

      1. I always mark emails like that as spam to nip it in the bud, but I would have not opted-in in the first place. Sorry that your users are kindof dumb :(

        I think you should offer something different as your paid upgrade before you write it off completely… maybe regular people don’t care about resolution and envelopes, but they’d pay to customize it with pictures?

        Anyway, thanks for sharing your results, and best of luck in the future.

      2. I don’t think Ben meant that your intention was dark/evil/whatever. Just that opt-in vs opt-out is a well-studied UX phenomenon, and you’re seeing a direct side-effect of it.

        By choosing opt-out, you’re going to pick up the vast majority of users who won’t even look at the checkbox. A significant number of these users will NOT want to receive stuff from you (from their perspective, it’s spam).

        For more info about opt-in vs. opt-out, see:

        http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_of_our_own_decisions.html

        (Skip to 5:00 for the relevant bit, but the entire video is pretty awesome).

  4. I believe that the main problems for this is that I couldn’t find where the premium part is (I reached the third step to test it). Which probably means that users are presented with the paying option at some deeper point.

    And one of the rules of the freemium concept is to be as honest about the pricing as you could be. Let users know that there is a free service and there is also a payed addition and do it on the front page. Users just don’t like surprises and they can’t be blamed for anything – it is always something with the concept that makes them act in a certain way.

    1. On the 5th step of the journey, there is usually a paid option to choose from in addition to the free. Because the site is offline until next year, that has been removed.

      1. I agree with Boris, when I looked at the site it was completely unclear to me that you would ever ask me to pay anything because you don’t mention the paid version anywhere I looked (admittedly I didn’t read all texts but neither do most visitors). With no psychological “preparation” that you might ask me to pay I’d be very surprised to see a premium button at step X and will be much more likely to just jump for free (in a way seeing pay all of a sudden is scarry, so many sites put free on their frontpage and the turn out to charge you anyway). If I were you I’d give Freemium one last chance by playing with the following changes:
        – Note right on the start page visually (not in float text) that there are two versions
        – Create a comparison chart that outlines the differences and lists the price of the premium product
        – Have a direct 1:1 example of the low res and high res letter with the comparison chart, maybe even with a zoomed in example such that users can see the difference
        – Have the customer decide right from the start if they want the free or premium version (my hunch is most parents would go “well, my kid is worth $5, let’s take premium”, try to get them to connect the premium version with the value of their child with them). If the choose the free version you can still bug them along the way with premium, but most importantly people who choose premium will not abandon at step 5 and go back to create a free version (they already put all the effort in).
        – Set up a tracking funnel to see where people hop off (if they do) and work on these steps.

        Just my 2 cents, but I think your site could actually work well for freemium if you change your strategy slightly. Easter bunny could be a good lab-rat for next years santa rush.

        Good luck and keep us posted!

          1. You seem to be missing his point. He’s saying to *not* inject the premium version in Step 5, but to start up front with the selection on the Home page or on Step 1.

            The reasoning is, and I tend to agree, that users who come to the site may have an impression that the service is free, since there is no mention of a price anywhere. Then these same users (who may have paid for a premium version) are immediately turned off when offered a paid version half-way through the process.

            It does not matter that payment is not required, and it does not matter that the premium version offers value to them. The visitors will most likely feel as if you are attempting to play a “switcheroo” on them.

            Whether this perception is true or fair is largely inconsequential; it is the reality of how shopper psychology works.

            And one last thing. You know what also will turn many people off? When their service provider calls them cheapskates or insinuates in any way that they are cheating or abusing of your “good nature” by actually taking advantage of a perfectly reasonable offer of a free service.

            Even some who paid may be appalled at the thought of being labeled as such had they decided to click the “free” option in Step 5. That is not a way to do business, online or off-line.

            Good luck.

            -dZ.

  5. Hey Tyler,

    I’ve had similar experiences with web properties in the past… *free* customers prove Pareto’s law. They’re the 80% that account for 20% or less of any financial target and account for nearly all the headaches.

    Did you catch this article? “Everything for free, always” http://www.elezea.com/2011/12/facebook-ads-and-you/ As a Facebook advertiser, I was blown away by his assertion that $3 per YEAR would make it a wickedly profitable internet property… but he is right; the internet wants/ expects things to be free and cries over having to pay for anything.

    It will require a fundamental shift in the greater ‘internet supranational society’ to change this. But, in the meantime, focusing your products on the 20% of people that will pay for your service / product will pay greater dividends… both in terms of ROI and your sanity.

  6. I do sympathise with you. I have a free newsletter that people subscribe to and then often mark as spam when they’ve had enough (in their mind I guess it’s the quickest way to unsubscribe).

    But you could also look at things this way:

    1) You probably wouldn’t have got that great traffic if your service wasn’t free;

    2) You collected 50,000 fresh opt-in emails that you *could* monetize with affiliate promotions or future products;

    3) The majority of users most likely appreciated your service and feel positively. This could have leverage in the future. You have created an amount secured the trust and approval of a large audience.

    4) Your site has a value now that would be lower without all the above.

  7. Sounds like a great biz idea and really a great experiment! Why not drop support for the free users and provide only to the paying as a perk, in fact tell them that they’ll get support for the paying version, and just don’t send any follow up emails to the free users.

    Stick some ads on the free version. If ecpm is ~20 cents / thousand visitors, you could generate an extra $2400. But I have to say – the thing that makes me hesitant about this business is that the customer-biz test cycle will take a whole year to come full circle. Not worth it if you’re going to spend more time in dev mode.

  8. I don’t think you should necessarily give up on the freemium model, but in this case, “making a letter from Santa” is something that most people could do on their own with little effort and no cost. So it’s not a huge surprise that most of the users chose not to pay for it.

  9. “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. ”

    That is not true for all users. I have never bought stuff before, but since the freemium model is around I have bought several stuff.

    Just a quick example:

    – Recently Lineage 2 (http://truly-free.lineage2.com/) changed to a freemium model. I refused to pay in order to play on their servers, but now I have no problem in doing so.

    – TeamFortress 2 – You can play it for free. But if you want these extra stuff you have to pay. And I did. I think Steam is doing everything right lately, piracy it’s not about the price. It’s about how easy it’s for the user to pay for your service.

  10. Jeff said:
    “In short, I *can’t* pay for your web site because you have a free plan. I think there are lots of people like me.”

    I’m sorry man, but that is the dumbest excuse i ever heard to not pay for a service/product. And i’m glad that there are lots of people out there that are NOT like you.

    1. I disagree with you, marcio. Jeff is spot on. I too find it next to impossible to pay if I’m offered a free alternative by the same vendor that meets my needs/wants. In fact, I’d be a fiscal moron to do so.

      1. First off, you don’t understand what ‘can’t’ and ‘impossible’ mean. Fact is, this guy’s not doing it again, precisely because of behavior like yours. If your interest as a consumer is in having this service around, your ‘can’t’ just effed you.

        This flows to Groupon & Bros. as well — if you care about a business continuing to exist, you have to decide whether a one-time cheap purchase is in your interest. ‘Get it as cheap as possible, now’ is absolutely NOT the only course for the self-interested.

        And if you DON’T care whether this business exists, that’s a great reason NOT TO OFFER YOU SOMETHING FREE!

        Charge, Tyler. You’ve created something of value, and people who’ll only use it for free aren’t the people you want on your email file anyway. By definition, they have no value.

    2. it’s not can’t it’s won’t.

      What people (including some developers it seems) don’t understand is that if you are not the customer (and if you are getting something for free, you are not) you must be the product. That’s how the google and facebook model work. If you are giving a service away,especially a seasonal, throwaway service, and not accepting advertising you don’t have a business model let alone a business.

  11. There is another rational response: only contact and respond to the paying customers.

    This is a pretty standard operation. The free gets you the basic service, and the paid gets you personal service. Instead of trying to convert people, focus on the people who are already pre-disposed to use the service.

      1. The issue is that if you don’t respond on your own site they will smear you elsewhere & claim that you don’t respect your “customers” (even though they paid you nothing, and are thus not an actual customer).

        Free gets you $x worth of links while eating away $y worth of your faith in humanity. Thus your approach to free is forced to change as you gain awareness (the trade off is absolutely worth it when you are obscure, but by the time you become popular it no longer is).

        On our help desk software we give people the option to pay $10 or $20 to Charity:Water for support if they are not an actual customer. Over about 8 months so far a grand total of 1 person has done that & still hundreds of non-customers fill out tickets that we just delete.

  12. Have to agree with Ben re the spam complaint you have with the free users. Not that some of your other points may have value. Really, what you’re describing is why App Stores and very inexpensively priced software, ebooks, etc are gaining so much favor. If you sell a game for the price of a cup of coffee, you’re going to get a whole lot more people who will buy it. But the purchase has to be easy and fast. I myself have not purchased things that only cost $1 because I don’t want to bother to take the time to enter my credit card information. I’m just that lazy and I’m sure there are others like me.

  13. Let me ask you: did you track how many of your paying customers started using your app as free customers? Am I wrong if I say more than 99%? I mean, you’re right about people that will never ever pay a single cent if they can do it for free, but freemium is a great model to get new users to your app. Maybe you just didn’t design your freemium strategy well enough. Instead of getting rid of free users, try making their life a little bit more difficult (maybe adding a watermark, limiting the number of letters per user, etc). Also, you can be more flexible with the paying accounts (different levels of rates/services).
    I mean, don’t blame the business model when it’s proven it works very well in many cases, maybe you didn’t apply correctly this model to your particular case.

      1. While your article makes sense this comment caught me off guard. If most of your users started out with free then converted to pay aren’t you losing those paid customers by removing the free version?

  14. Hi Tyler,

    Seth Godin talks about how difficult it is to get people to pay for something they’ve never paid for. Today, people are presented with all kinds of things they have never seen before – and don’t know how to buy.

    How could you sell something they know how to buy?

    Thanks for the writeup.

  15. I don’t think your problem has anything to do with Freemium.

    Your time window was hopelessly small for Freemium to work and for you to make this conclusion. For Freemium to work, you need an ongoing customer problem you are solving. Sending a letter from Santa is a very brief problem that parents have … they use the service 1x and are out, they can’t get to know it, and get up-selled as the holidays are so short and their attention span is extremely limited.

    I actually think that for Easter you’ll have better results if you stay the course.

    That said, I think it’s going to be a long slog as there are only so many holidays so you only get to test and tweak the model when there is a holiday.

    Maybe try the tooth fairy or something as well as you can test/tweak it constantly as tooth loss is distributed over time.

  16. I won’t just skip Freemium. You may need to give less features away for free! I also run a Freemium service and people buy a premium account years after they used the service for the first time for free.

    But I agree, people who don’t pay can waste your time! And yes, it’s up to you to just close the “free” part.

  17. Freemium works with some business models but in this case, I’m pretty sure it’s not the right play. Freemium works best when you get the customer addicted to the point that they would be willing to pay money to get more of it. It seems like your website gave out the entire product for free and you are asking money for the accessories. Imagine Dell giving you a free laptop then get mad when you choose not to buy the leather case or an extra battery. Unfortunately I think that is how you have setup the site this year.

    If you want to run this test again, I would recommend allowing the people to create it but charge to print it. Or better yet, charge even more money and get it sent through the actual mail. If I remember correctly, a similar service had teamed up with a postal service over in Europe and they’re making a killing sending letters that have been stamped “from the North Pole.”

    1. I agree. I always thought freemium was best explained in the gaming sense. You can play the game for free (e.g. MafiWars) but if you want the better weapon, or faster upgrades, or one time kill shot, you fork over $5, $10, or $20.

      Most people won’t come in and instantly buy 1000 experience points. But after they’ve played for a time, for example a month, and are tired at how slow they upgrade, they fork over $5 for 1000XP without batting an eye. After all, it’s wired up to paypal, and the process is instant.

      I’m not sure I understand how a seasonal opportunity would work well with the freemium model. It’s a one time (a year) thing. I don’t have a chance to get addicted to the product. There’s almost no psychological pull on anyone to upgrade.

  18. Tyler,

    the whole point to “bare” free users is to get more of paying users than having to pay to use the service. According to your numbers, did it work this way? If the free users cost you more than they brought you paying users, then yes, freemium is broken in your case.

    I would say freemium is working only if the free option is very cheap to operate (I would say no email, FAQ only, dowload the file, print yourself for instance in your case) and there is a gap in value for the paid version. If I may, from what I understood from your description, the gap between the free and paid version is not big enough for people to care about you and your service. It is a common psychological pattern. IMHO, they felt “Ho! Free letter! What’s the paid version : better quality? Don’t care, I have my letter anyway.” Once they said “don’t care” they don’t care about your service, about you, about your email and feel superior to you then take to time to nail you down.

    I would have felt the same as you. I did quite the same mistake, but instead or raising the bar to cancel the free version, I lowered what you get for free and introduced an intermediary, cheap little something to get the credit card, once I got it, I could increase the basket size.

    Hope it helped.

  19. I’d look more at your value prop and what you’re offering for free. Honestly if I came for a letter to santa and I got that, the fact that I can get higher rez and an envelope is not enough of value for me to pay very much — and even the cost of time going through the hassle of buying might be to expensive. If theres not a clear enough value prop on one side then freemium really doesn’t work.

    1. This is exactly what I was looking for in the comments. The premium product offered simply wasn’t premium enough. Not for the pain in the ass hassle of going through paypal at any rate. I can totally see this letter to santa thing as a cute little service many people would use, but until there is an always signed in payment ready (probably google wallet in a few years), I am just not going to go through the hassle of leaving your site, signing in to paypal, entering my credit card number if it isn’t saved, and then heading back to your site and hoping there wasn’t a foul up with all the hand offs.

      If the original low quality was 99 cents and I was already committed to going through the payment process, then I could see moving up to 1.99 for the premium.

      I think the core issue is that online transactions are still a huge pain in the ass for small sites.

      To be honest I don’t know that there is a price point low enough for me to go through the hassle to pay you for the upgrade.

  20. I’m not sure there is really much wrong with your business model. I would worry more about how to convert free users to premium users or get them to do marketing for you. For example, I never noticed if there was a Twitter or Facebook button. You could also think about how to make the premium more valuable, at least in perception, like numbering the letters, printing it out for them, etc. Also, while the web app is usable, you might find a UX designer to make the web app delightful, like inline editing, realtime form validation, and more concise copy on the homepage.

  21. To be brutally honest I think you missed the big point in your numbers here. Google has a similar philosophy with Gmail. They estimate that for every X free users that Y users will convert to their Google Apps for business or buy more Gmail storage space and become paid users. But they also understand that to generate the paid users they also need to offer a free version to create interest and get people used to their email system. Your site works in exactly the same way. Out of 50,000 or so users you have lets say 1,000 that are paid users. The “cost of generating” one paid user is then 50 free users. That’s what they call in “business development” cost or 50 free leads to generate one paid sale. You will quickly see that if you take away all the free users, your paid user base will also dry up and you will not be generating any more free leads…

    Free is just business development cost, it is the investment you make to get paid users…

  22. There is a temporal dimension to making freemium work that requires some time and repeated use before customers reach the tipping point and convert to paid. Evernote is a great example of this model.

  23. I recently saw this vid from MaRS on SaaS business models and SaaS math. I think you may find some of the information in it very helpful.

    SaaS Math – MaRS Best Practices
    http://vimeo.com/24269959

    I would also recommend that you might like “The Lean Startup” book. This was your build-measure-learn cycle / experiment and it was actually pretty successful in some ways. All you have is a situation where it is time to use what you learned, build things a little different (or pivot) and try again.

    http://theleanstartup.com/

    “Freemium” is just one way to do things but in and of itself there isn’t all that much wrong with it just so that you know what you are getting into. I think those two resources listed above will assist with analyzing what you learned and making the next best moves.

    Good luck!

    Kent

  24. While I don’t see freemium as being all that great a business model either, you may want to try pay-what-you-want before going paid-only.
    Just make as easy as possible for people to give you whatever they think your service is worth and many will be happy to.

  25. This is a controversial topic indeed. In my opinion I would recommend not completely dropping the free service.

    • I understand perhaps the disappointment in your users, especially the free, but there will always be the chance that they are using the site free for a reason. And there will always be the free users that do read policies and FAQ’s. You cannot simply shed the those users, or they will feel betrayed and possibly even resent you and your site.

    • I also believe, playing on what Luke said, that you have probably garnered quite the audience that will think about this service the same time next year. If your free users this year are looking for this again next year and their only option is paid, they would probably be unhappy to see a service they were pleased with now have gone from free to paid.

    • I believe it is also important to offer both services so that people have a better idea of what it is that they’re paying for. If somebody were to look down the free path and say, well.. I get a printable copy of the letter and that’s it.. they would most likely be inclined to check out the paid option. If their were only a paid option, they would have nothing to compare it to in order to determine it’s value and justify spending money on it.

    Consider perhaps, different levels of monetary commitment, each featuring varying packages, respectively. For example, a cheaper package which would feature support and a door hanger, or the full package for whatever it was that includes the full shebang, and maybe look for some other little nifty thing to throw in along with that.

  26. I will mark anything as spam (if I don’t want it) if they make me sign in to my account in order to unsubscribe. If I don’t want to read the emails, I’m probably not going to have the patience to remember my username/password to login and opt out. Was your unsubscribe a one-clicker?

    1. Yes, it was a one clicker. You can see the actual email here. In addition to the unsubscribe link in the body of the message, there is one at the top and the bottom that is automatically added by my email provider.

      1. What do you consider an “email provider”? How do they know if a user classifies an email as spam? And how do you get that information?

          1. “When a user hits the spam button in their mail client, the provider is notified”

            For which mail clients does this hold true?

  27. Hey Tyler,

    Thanks for sharing such an interesting piece. I would like to share my point of view of freemium and would like to have your comments on it.

    As far as my current knowledge is concerned, I think the ideal product to lie in the freemium model is the one which gives the user enough to start using it but shows him barriers of paid customers only for important features within that product. I think thats the only way a user will be motivated enough to pay for the product. Thats probably the toughest part about where to put the barriers which result in positive conversions.

    About the email part, my personal observation is that a typical user who gave his email address for a free signup of a probable one time use app is most likely not going to like emails being sent by that app, unless they are tempting enough for them, like another mouth watering freebie

  28. Or, people didn’t find your upgrade worth the money. I personally wouldnt care if my santa letter was ‘high-res’ nor do I need an envelope or door hangar. Different letter designs/templates, however, I would pay for.

  29. Concerning the e-mails,

    You used the opt-out path instead of the opt-in path; for many people, that’s the kicker. Let people opt-in to those e-mails (in a way other than pressing “I agree” to a ToS or security notification). There’s always a boost in my appreciation of a person or firm when I see the “Receive e-mails” about such and such defaulted to OFF.

  30. it just mean your monitization model is broken
    If you cannot upsell, try cross sell
    If your users do not pay to you, have a 3rd party pay you to access your users

    Free works very well, its just not trivial to find how to monitize

  31. Opt-out email gathering = spam, and legally forbidden as an e-mail marketing option in some places like here.
    Use opt-in. I always try to click on opt-out if I see them, but if I somehow miss that option because it’s not obviously visible, then you still don’t have my consent for e-mail marketing, and any e-mails received (including the first) are by definition unwanted spam, since I didn’t want that message.

    1. It’s not “email gathering” at all. They used my site and received a transactional email to get their download link for the letter they created. In the process they agreed to the privacy policy which says we may email them about our other sites and they can unsubscribe at any time. That is what this email did exactly.

      1. That is functionally identical to opt-in. You are saying you can’t use the service otherwise, that’s why you get the spam marking. It’s not a matter of morality – just you wanting to avoid black listing.

        We’ve found that if you promise to email them once and only once as a result of the free offer, and in your email you say eg “you will not get another email as a result of your Xmas card,” you won’t get marked as spam.

        Plus we also do what Erica says below “You are receiving this email as a result of…”

  32. I mitigated many spam complaints from a free opt-in by saying in all successive emails, “You are receiving this email because you signed up at [your site URL.] Thank you for…” (and in your case, I would continue that as “Thank you for using [...] to make a free Christmas card!”

    Those two sentences dropped my spam flags from 1.0%+ to 0.1% or fewer. Try it for yourself; I’ve recommended this to others and they’ve had similar experiences. Your subscribers are probably flagging as spam because they don’t associate your email with the site they signed up on.

    -Erica

  33. People who get free healthcare behave the same way. The feel they are entitled to as much as they can get. And they complain when the red carpet is not laid out. Entitlement abuse is a problem. It never used to be a problem but then again, corporate management never used to focus on their compensation more than the performance of their companies.

  34. Perhaps you should treat various customer segments differently.

    Don’t send a thank you email to free users! Don’t send them anything! It doesn’t cost you anything to have them use your app, so provide the free version and let them have at ‘er. Perhaps they will tell a friend, or show a friend, and you’ll end up with the possibility of an additional conversion.

    Treat your paying customers like gold! They are most profitable and ultimately more fulfilling to deal with. Treat them very, very well!

  35. I disagree, this is what you get for offering services to consumers. That is part of the life, trust me. Either you live with it or just do not go there.

  36. Completely agree Tyler. When I had a freemium model the people who caused the most support calls were free members sometimes by a factor of 50. Now I have scraped the freemium model I have had to change my marketing strategy, but now I have less customers, more profit and more time to look after my paying customers and enhance the platform.

    I think free people don’t see time as money. This is just speculating but one thing I noticed is that if people aren’t paying you money, they think your time isn’t that valuable. I suspect their thought process goes along the lines of: “If you are giving them all this for free is it really too much to ask for you to do something extra, it obviously won’t cost you much or anything at all.”

    Where as a paying member goes, “I am paying them for this hard work. If I want them to do something I am going to have to pay them.”

    Either way freemium can work, you just need your systems setup to handle the support. There just seems to be a direct inverse correlation to how much people pay you to how much they contact support.

  37. I believe what occurred is closely related to the topic of cognitive dissonance (social studies / psychology):

    I had a friend who studied psychology tell me that people will be more appreciative of a reward (product) when they had put some effort in (money). People actually paying money have a bigger risk to manage, which might result in risk reduction by answering any uncertainties.

    I tried to find some articles to show you in direction of a better explanation:
    http://en.wikipedia.org/wiki/Effort_justification
    and http://en.wikipedia.org/wiki/Cognitive_dissonance
    is what i found.

    – Elwin

    1. I am loving this thread.

      Elwin, effort justification / cognitive dissonance can work both ways. I’m reading Influence, (good book) with great discussion of how we want to be consistent. If users start with a free first step, additional steps (like upgrading/paying) in the same direction are easily justified to justify the effort. The freemium model can thereby reduce dissonance.

      I’m about to launch a freemium model business. Let me know if any of you are up for offering free advice, and I may upgrade later….

  38. I think that your sales letter (http://www.tylernichols.com/letter_selection.png) is part of the problem. The free version looks clean and simple, “lower resolution” even looks like a perk when it has that green checkbox next to it.

    Deluxe kinda sounds like “if you’re really into this and NEED the absolute best”. Even the word deluxe has the meaning that it’s not useful, just luxury.

    I think you should try and appeal to people a bit more, like “please support our hard work” or something similar, not just marketing the paid version as being in the customers interest.

  39. Your site targets Christmas- and essentially this comes just once a year. My guess is that most people consider this a single time use proposition and they don’t want to hear from you again, if in fact they even remember who you are.

    As a single use site (from their perspective) you are an easy throw-away. Not many people are foresighted enough to say to themselves I want to continue this relationship into Christmas next year. Why? Because it is free and we are conditioned to expect if this is free this year than there will be 10x the number of knock-offs next year.

    For most people it is probably easier to Google something when they need it than to remember it for a year.

    I think the problem is not so much that you are free as this site (because of its nature) doesn’t make a strong use-case for sticking in the customers hearts or minds.

    IMHO, there is more at play here than what you outlined above.

  40. Anyone here think that the problem isn’t with FREEMIUM, but with your target AUDIENCE?

    Who are the people who are going to get this type of service? Stay-at-home mommy blogger/facebooker/pinterest people. These people aren’t big SaaS purchasers. They don’t know about that.

    They just want the free little letter to for their child. They MAY actually pay for you to print it and mail it too. So you may be able to get a paid option that way. But not with high-rez and door hanger type of things.

    You may be better off just going as a FREE service and then just focus on adds and even more traffic. Or add MORE VALUE to your paid option and drop the free altogether.

    Focus on VALUE: http://www.themana.gr/management/3-keys-to-great-customer-service-vision/

  41. 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.

  42. 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.

  43. 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!

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

  45. 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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