Developers today are looking seriously at the advantages to be had from free entry-level versions of commercial software—so-called “freemium” software. Developers often see freemiums as great test beds for potential commercial products. This is a trend that looks to be taking hold in the enterprise and developer communities.
Freemium, a mix of “free” and “premium” has started to pop up regularly as part of the menu you can choose from when it comes to getting your hands on software—from open-source software, to software you can buy on perpetual licenses and install on-premises, and every combination in between.
Users like the bottom-up freemium model, where they can use the software first and pay when it delivers value. Software companies get sales and renewals if products perform. So everyone’s interests are aligned. Little surprise we’ve seen the list grow with the likes of Dropbox, LinkedIn, Yammer, Skype and more recently BIRT iHub F-Type, with both free and paid-subscription functions available.
Some companies use a variant of freemium where they offer a free lightweight version and then upsell the product to more sophisticated enterprise users. Box is a great example of how this model has successfully driven sales.
The idea behind freemium is not new; it is a revamped concept of shareware from the 1980s and 1990s. A freemium pricing strategy basically puts a product’s or service’s capabilities on a sliding scale: at the bottom end of features and capacity it is offered for free; at the premium end it is upscaled to paying customers.
Freemium has mushroomed in the consumer IT arena, but it has started to creep into the enterprise software market, enabling companies to build large user bases and upsell into them for customers looking for a premium product or service. This so-called consumerization of enterprise software should not come as any surprise. It is basically a perpetual motion sales tool on which to sell your product.
Cloud and Software-as-a-Service are two of the big arrivals to the “new” IT procurement and consumption model, with new, disruptive but also traditional enterprise ISVs climbing aboard. At the same time, enterprise software is becoming more agile in order to meet customer demands. Any route that allows developers to obtain results quickly is deeply attractive.
Social media has also helped to drive the freemium bandwagon. Social networks and platforms have become a great way to build communities of users who can comment in seconds from around the globe. This makes it fast and simple for developers to try the freemium products their peers are chatting about.
Freemium makes total sense if I am an enterprise developer and perhaps an IT buyer. But want about from the supplier’s standpoint? Freemium is a great strategy for vendors with an existing user base, such as an open-source community. It gives vendors a chance to expand their user base and monetize at the same time. That has to be good.
It is worth pointing out that freemium and open source are not one and the same, in case there is any confusion. Freemium is a relation of open source, but as a strategy it is completely different. Open-source software provides open access to the underlying code for developers to get their hands dirty and extend the creation of their own apps. Freemium doesn’t go down this road.
Once the freemium app has got its audience to bite, the freemium player needs to look at how it can be boosted to the paid version, without leaving the entry-level user deprived of value, but at the same time not giving it all away. This is a difficult ball to keep in the air, and one that needs to be carefully monitored to succeed.
Looking at the consumer freemium space, as the enterprise freemium model digs in, communities will undoubtedly contribute, provide new content extensions, highlight offers, push viral marketing, and act as evangelists to nurture the model and let it flourish. For CIOs, this is positive news as it shows that commercial software vendors are getting the benefit of the experiences of their user group as much as open-source resources.
We are going through a sea change in the software industry as customer demands grow and software becomes increasingly complex. Freemium is set to ride the crest of the wave in satisfying both parties, while providing useful insights for future developments.