Should Your Next App Follow A Freemium Business Model?
Between squishing bugs, squeezing in new features, and propelling their next mobile project to market, mobile developers rarely have an opportunity to give the task of pricing their app the consideration that it deserves. The price point (and the revenue strategy in general) can have as much of an effect on the success of an app as the design itself. Despite the obvious importance of picking a price tag or a revenue model for your app, many developers mistakenly leave pricing as a marginalized afterthought that’s often done at the final stages of development.
When picking a price, an uninformed developer will often stick to a very traditional model. They choose an upfront price for their app, and for each extra feature they can include, and for each bit of extra polish they can add to the interface and the inner-workings, they believe that their app should command a higher and higher price tag.
This model has worked for decades with all sorts of tangible goods ranging from cars to collectibles. But, the mobile app market has become so competitive that many types of apps have become commodity-like, leaving the developers with no choice but to compete on price. And that is exactly where mobile technologists prove once again how brilliant they are — by innovating not only in the design of their apps, but also in the way that they share, sell, and distribute them.
What Exactly Is “Freemium”?
The term “freemium” comes from a creative combination of the best facets of free and premium services. It strikes a careful balance between accommodating the price sensitivity and skepticism of customers and still leaving room for businesses to grow and profit. Those two goals may seem contradictory, but as illustrated later in the article, quite a few businesses have had remarkable success under the freemium model.
“Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base.” -Fred Wilson
We can’t give mobile technologist credit for inventing freemium; it’s been in practice within software sales since the 1980s (remember “shareware”?). But, it’s clearly not an old, obsolete technique for catalyzing business growth; it’s more of a proven, tried-and-true method that will never be outdated as long as customers continue to be skeptical and price-sensitive of every purchase. And, for better or worse, we can be quite sure of that. How many of us balk at the tiny, $2 dollar price tag of most apps? If that’s no price sensitivity, then I don’t know what is.
Successful Examples of Freemium Pricing
CamScanner is a popular iOS app that effectively turns your iPhone, iPad, or iPod into a multi-page document scanner. It’s a very versatile app for any professional, and the makers of CamScanner have embraced the freemium model. They offer both a free version with basic features, and a “pro” version with extra capabilities. In addition, CamScanner offers the ability to fax a scanned document, but they only pass the added costs of faxing on to the customers who choose to use it. CamScanner has a very thoughtful tier-based business model that leaves occasional users, “pro” users, and power users very happy with the technology and very willing to pay their respective fees.
DropBox, the popular cloud-based storage service, saves a lot of money on their marketing costs by essentially “employing” their users to do their marketing for them and win additional storage space in the process. DropBox customers are offered the option of buying more storage space, or earning it by recommending and referring the product to their friends, coworkers, and families. This is a very smart way to circumvent the price sensitivity of customers, especially considering the presence of free alternatives. DropBox also offers premium accounts that range from $10 per month to more than $200 per month, which allows them to satisfy both low-maintenance and high-maintenance users by accommodating their different preferences and needs.
Slydial is a popular service that allows you to send a call directly to a talkative colleague’s voicemail… without ever ringing that colleague’s phone. This can be very helpful if you’re looking to avoid long, unnecessary, or painful conversations. Rather than charging every one of their customers for this service, Slydial offers free and premium services. For free users, Slydial makes you listen to a short audio advertisement (which is still far better than listening to the person you’re avoiding) before sneaking you into that talkative friend’s voicemail. The premium service is nearly identical, but has no ads, leaving it up to the user to decide which type of service they’d prefer. Once again, a very elegant way to satisfy a broad spectrum of customers using freemium methods.
Adhering to freemium pricing models may seem risky, and it can often feel like you’re simply giving all of your hard work away for free. But, as many companies have proven, there are some clever ways to attract and accommodate a wide variety of customers. Rather than setting a price threshold that only your most interested customers will cross, you can prove your worth to skeptics, win their favor, and eventually turn a great deal of them into premium users.
How do you go about pricing your apps? Do you appreciate freemium business models, or do you think it’s bad for the industry?