Freemuim

Tuesday, September 04, 2012

Freemium is a business model where a substantial portion of the services (they are almost always service oriented) are given away for free to most users, while a small portion pay for premium services. The premium members cover the cost for themselves and the free members as well.

There is a lot of debate about how to make the business model work, and for the most part I’m not going to get into that. Instead, I am going to give some examples of the freemium services where I pay for the upgrade, and what got me to do it. I’ll also throw in a couple of example of times I choose not to pay and why.

For me there are three thing a freemium service has to do to get my money: have a better free service than anyone else, or at least be among the very best; have something truly valuable to offer if when I put my money on the table, not just a feature I don’t use or that others offer for free; and instill a sense that I am financially supporting something that I have a personal connection with and would be sad to see disappear.

What I Pay for and Why

Ars Technica : $50/year. Ars Technica is a science and technology news site, now affiliated with Condi Nast who own Wired Magazine and Vanity Fair. They, in my opinion, did everything right. First, the free content (all the articles, most of the forums) was really good. Good enough to keep me coming back for years. Even though I didn’t give them any money, I was a loyal reader, and I cared about the continued success of the business. In fact, I’ve been reading Ars since it was little more than a project for some recent college grads, (and a few grad students) trying something before they got a real job. Back then there was not premium membership.

But, the content was good, the site grew and the content got better. The site became add supported just as internet ads got both highly annoying and easy to block. (Has it been long enough to ask if anyone has morbid nostalgia for the “punch the monkey” ad?). I blocked the ads and kept on reading. Then they did a second thing right, they asked me to stop freeloading. In a well written article, the chief editor explained the costs the site had and the difficulty they were experiencing because of block ads. Their tech savvy readership blocked ads ar upwards of 70% and it was causing financial problems. He asked readers to keep the site running the way we all wanted it to by either unblocking ads or buying a $50/year subscription.

That article got to to check the subscription page where they did a third thing right. They offered me something of real value. In my case a complete Atom feed, but it is not important what. Just that it was something that I could not get otherwise, and something that I wanted. I would not have payed just for the feed, but it pushed me over the edge into the premium spot.

GitHub: $7/year. A very similar. GitHub host code. If you are a programmer, you already know what it is. If not, I’m not going to try to explain a Distributed Revision Control system to you beyond that. GitHub is great if you just use it for free. The site owners make a point of being the face of their product, they use it, and they try to get others to as well. Finally my premium subscription gets me a private repository that I really wanted. GitHub has one more thing going for it as well. It benefits from the network effect. The more people use the service the more useful it becomes, so Premium Subscribers don’t feel put upon by all the free users. The more users there are the more valuable GitHub becomes.

National Public Radio : $10/month. Beth and I give money to both Capital Public Radio and KQED in San Francisco. NPR is my main source of professional news. We don’t do TV, so NPR really is it. There is no doubt that I use the free service a lot, and anyone who has suffered through a pledge drive knows that they have the ask down. What is different here is that with the exception of a tote bag there is no difference in service. Radio just doesn’t allow for that. Still it is a free service that I pay for anyway.

What I use for Free.

The Sacramento Bee: This is something I probably ought to pay for but don’t. The Bee did a number of things that ensured that I will read the news they offer for free on there site but not send them any money. One reason is the product that I get. There are lots of news gathering organizations in Sacramento, and they all report the same 6-10 news stories. If the Bee decided it didn’t want me to read their news I could switch to two other local papers and three TV news stations and get the same stories. I am a bit of a news junky. When I was in College I ran worked weekends at the Current Periodicals desk. I read at least 6 different papers from across the country while waiting for partons. What I discovered was that the first 500 words of a story were about the same in every paper. It was the content after that that was different and interesting. Today, most of the stories in the Bee don’t reach that 500 word threshold. I can get the sme news anywhere, and it is not worth paying for.

The second problem the Bee has is that its premium version is all about home delivery of a print edition. I read all my news through my electronic devices. Newsprint in my world is only useful for packing fragile objects. I don’t really want to pay the Bee for the privilege of recycling their ads.

Finally, there is the sense of supporting something I care about. The Bee burnt that bridge when they spent two years calling me once a week begging to send me a free copy of the paper. They did this to spite repeated request to end the telemarketing calls. In this case their overly aggressive marketing cost them any chance at a potential sale in the future. In short, the Sacramento Bee got all three pieces wrong – they didn’t respect the relationship with their readers, they do not offer a compelling product that is better than the free competition, and the premium product they do offer is not a valuable addition but in fact devalues the service.

Yahoo mail: This is another thing I use everyday for free. It is an important service but not irreplaceable. In fact if I were starting over I would use Google’s service instead, but I’ve had my yahoo address since 1998 and it is the one everyone and everything has. Yahoo again fails all three tests. Its free service is if anything sub-par compared to other free competitors. Most of what Yahoo has tried to sell as premium – more space, larger attachments, fewer ads – they have backed away from because other services gave them away for free. Finally rather than trying to humanize the Yahoo experience, the company has done everything it can to make it feel like you dealing with a lumber faceless completely automated system designed to cut costs not inspire good will.

Lessons for Church

Churches work on a freemium model. Worship, fellowship, and most pastoral services are given to anyone for free. On the back end members are asked to voluntary pledge both as a spiritual commandment, and to the practical end of paying for salaries, utilities and programs. Churches can learn from the businesses above

Be a great church: There is a chicken-and-egg problem with churches that say, “we will be really great, once we have enough money.” The lesson I take from successful freemium businesses is that you have to be great first, then the money will come. Brand (neé denominational) loyalty is no longer an effective tool for most traditions. Some group of people need to look at any church and think “This is going to be the best possible place I can worship.”

Build good realtionships: Churches ought to be all about relationships, but too often when it comes time to give to the church those relationships are either ignored or worse abused. Part of successful Stewardship is reminding people how important their community is. Find the middle way between an over-bearing demand and a silently hoping that someone will give.

Give something back: It is not part of the christian tradition to give better “premium” service to pledging members. Paul actually makes a number of proclamations decrying such behavior. It is appropriate, I would argue, to let the families that give to the church know that they are appreciated and that their gift is being spent wisely. Thank you notes, quarterly reports, and open financial leadership are just as important as totebags and wine club subscriptions. So is affirming the theology of generous giving.

Conclusion

Whether it is a for-profit business or a church, if you give your product away fro free, then ask people to pay for extra benefits, the key to success seems to be having a great product to get people hooked and build loyalty, make a clear and convincing case for support building on the value of the relationships that have been developed, and offer something of true value to those who give, even if it is only the clearly articulated assurance that they have done the right thing.