When freemium works

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com

The question is simple: do you have something that at least some of your users will be willing to pay for? And is it obvious what should be free and what should be for pay? There are a lot of successful companies that have a freemium model. However, they all struggle with the fact that percentage of users who upgrade to a paid version is small:

While the millions of free HootSuite users may be incredibly demanding on the company’s services, Mr. Holmes said the benefits generated definitely make up for the costs in infrastructure and support. “They provide us with a ton of feedback on our product … [and] an amazing base of evangelists and ambassadors that tell their friends, family and colleagues about us. Ultimately, that’s of huge value to us.”

The idea of a service being public and accessible has been around for a long time, Mr. Holmes said. “We aren’t trying to look at ever having 100% of our users as paying users. It’s been core to our culture and core to our product from a very early stage.”

Mr. Holmes noted that the percentage of paid users — among them many Fortune 100 companies — has stayed constant at 4.5% since the option was introduced in December 2010.

If only someone could find a method that could get money out of more than 4.5% of the customers.