“Next Normal” Got You Thinking About “Freemium”?

Discover what pricing approach is right for your business!

One development that we’ve noticed in this economic downturn is that a lot of companies are pursuing, or improving, their freemium or free trial offerings.

What’s behind this trend? Prospective customers who may be struggling financially and are seeing their new project budgets stall will still find themselves needing to adapt to a new style of working. They will seek solutions to solve these needs. As companies grapple with new problems, their appetite for trialing alternate solutions could land you a long term customer - provided you lower barriers to trying and buying your solution. A freemium offering could incentivize many organizations to adopt technologies that were perhaps nice-to-have solutions but are now viewed as critical to seamlessly navigate the change to the ‘new normal’.

Insight’s ScaleUp portfolio companies have already deployed this strategy. Select examples of the pricing gestures made by them include: 

• Pluralsight has provided free service for the month of April to help remote workers skill up, and continues to offer select courses for free on a weekly basis
• Optibus has allowed transit agencies to create no-cost contingency plans
• WalkMe has made available a free version of its software platform to help companies and users get up to speed with Zoom
• Force Therapeutics is opening its platform to provide free service to healthcare organizations who need to experiment with and adopt telemedicine
• Monday.com is offering free and complete use of its Work OS platform to any non-profit organization working to fight the coronavirus outbreak
• Hootsuite is offering free access to its Professional Plan until July 1, 2020 to help small businesses and nonprofits stay connected to their customers and audiences.
• Diligent is offering free access to its Community solution for K-12 public school districts and small non-profits to help hold remote meetings and ensure connectivity during this time.
• Lakeside Software is providing free usage of its Systrack solution to allow organizations to plan their remote work capabilities and business continuity
• Anydesk is providing free personal usage of its remote desktop solution to allow people to keep connected while working from home

From a business standpoint, these moves makes sense. Many prospective users have time to experiment with new solutions. A freemium or trial offering has the potential to supercharge your customer acquisition. With the ‘new normal’ likely comprising more remote working than in the past, the benefit of freemium is likely to persist.

In this blog post we explore the most effective approach to free offerings in our new reality.

Freemium is for life, not just for COVID-19

To level set, let’s review what separates the concept of freemium from a free trial. Both are customer acquisition levers.

• A freemium model is an evergreen free version of your solution that provides a home for users (and companies) who are interested in exploring your product but don’t yet have a willingness-to-pay for it.
• A free trial is a free version of your solution that is available for a limited time to customers so that they can test out capabilities before they buy.

Freemium, when done right, can be a powerful acquisition lever. Microsoft Teams, which has had a freemium model since 2018, reached 44 million daily active users in April 2020 - more than double the 20 million they recorded in November 2019. Freemium can, however, be a risk for your company if not done right. Poorly executed freemium models are likely to cannibalize your existing revenue streams, replacing them with a group of customers that cost you to serve then but never end up paying you. The tale of Chargify demonstrates how freemium models can send a company to the brink of bankruptcy, even when freemium can work within the industry (Insight portfolio company Chargebee successfully uses a freemium model today in the same space).

With such risk, pushing out a freemium model as a reaction to the economic downturn is a potentially dangerous move. This could create a churn event, where significant numbers of paying customers decide they no longer need to pay because they can get the functionality they need, from the same provider, for free. If it turns out that freemium isn’t the right long-term move, it is also very difficult to extricate your business from it. You will have to persuade a pool of prospective customers to pay for something that they feel like they are entitled to at no cost – the freemium model has anchored that expectation. In the process, you will burn many leads and may have to manage a PR backlash.

In June 2020, Insight Partners will launch additional content that can help guide your decision-making process around adopting a freemium model for the future. If you aren’t 100% sure freemium is the model for your business, we recommend starting with a free trial or deploying a smaller, targeted freemium offer in the near term. 

Start with free trials as a safer bet

While offering many of the benefits of freemium, free trials have a natural time limit that dissuades current customers from down-selling to freemium as they know a trial is a short-term solution. Free trials also provide a solution to the migration problem; customers are signing up in the knowledge that their free time will be limited, so their upfront expectations will be that they will have to pay at some point. In this demand downturn, you can even use the trial model to test out the effectiveness of a free offering in increasing customer acquisition, and guide future thinking around a longer-term freemium solution.

Some companies, such as Pluralsight, have extended the length of their free trial. Others, including Shopify, have extended the functionality and length of their free trials (from 14 to 90 days, while adding email capability for everyone regardless of plan). 

Targeted freemium offers will limit exposure, while providing much needed services

A lower risk option is to provide a free solution to a different (or specific) target customer group. By setting limits on access or targeting the functionality of the freemium to different target audiences, you can maximize the benefit of your solution for areas of the population not previously targeted, to a market segment where it can provide the most value. At the same time, you are limiting the possibility for current customers to ‘game the system’ and down-sell into your freemium solution. Some of the ways we’ve seen this concept being used include:

• Support non-profits – Companies such as Diligent and Monday.com are providing valuable services to non-profits who are affected by the crisis, or actively working to solve it. In addition to helping our society through this tough time, this provides a brand halo effect and can also familiarize users with your software.  These users may become future customers in other organizations.
• Target vulnerable customers (e.g. small businesses) - Companies such as Hootsuite and Chargebee offer free service to a subset of customers who need it most, such as low-funded startups. This allows these companies to stay in business during the crisis, while potentially opening the door for them to be paying customers in the future. 
• Target end-user use cases – Companies such as WalkMe and AnyDesk have solutions which allow end users to utilize a component of their product, without opening the whole solution for free. This allows for practical applications (such as, in my case, allowing older relatives to learn to use Zoom and connect) and in doing so allows users to familiarize themselves with the product. These users will be able to advocate for the efficacy of the product in future purchase decisions. Such a tactic is also used in the developer space by companies such as New Relic and Segment, where low featured sandbox options of the product are available for developers to test out the product capabilities on non-production instances. If you use this tactic, be careful to put the right limits on your product usage to prevent non-targeted organizations from using it (e.g. limit usage to non-corporate email addresses only).

If you have any questions about how best to utilize a freemium / free trial strategy, contact Insight's team at PricingOnCall@insightpartners.com.