In case you haven’t seen it, here’s a link to Fred Wilson’s description of the “Freemium” business model.
Now let’s segue from there to another reason why freemium really makes sense. Erik Keller at SandHill writes:
“Now this approach may be seen as foolhardy by those who believe that products are always sold rather than just bought. This assertion, however, must be reexamined in the light of rampant license-fee discounting as well as the fact that [a typical enterprise software company] spends over 90 percent of its license fee revenue on sales and marketing expenses. The reality in enterprise software is while most companies do not give away their software, they might as well, given the cost of sales as well as market conditions.” (emphasis added)
I had to reread that paragraph a couple of times to really grok it, but Erik is spot-on: many companies could, arguably, eliminate their “traditional” sales and marketing expenditures, give their products away for free, and still do just about the same on the bottom line.
Put another way…what if your company could turn its sales model on its head, and respond to customer pull, versus selling and marketing via “push?”
(Bonus quote from Erik, from the same article: “When a value-oriented buyer’s point of view is taken, the core of this inefficiency becomes obvious. From an income-statement perspective, the cost of delivering a product and service as well as R&D are customer value-adds: buyers get something direct and of value from these costs. On the other hand, sales and marketing as well as general & administrative expenses are seen as valueless to the buyer. They represent the overhead that a vendor needs to engage the market.”)
New Language
It’s breath-taking how quickly language changes as new words are developed. Here are two new favorites:1. Freemium as seen on Christopher Carfi’s The Social Customer 2. Disinhabition as seen on Grant McCracken’s This Blog Sits at theThese shifts in lan…
Chris
Interesting stats and a nice idea, but I fear it wouldn’t work in practice. For one simple reason: diffusion dynamics.
If you look at the diffusion curves for new product introductions, the rate of diffusion is driven by three factors: the size of the potential market, the rate at which people buy driven by marketing comms and the rate at which they buy driven by WOM comms. Marketing comms generally do the heavy lifting during new product introduction and WOM comms pick that up once a critical mass of customer advocates have been created. And therein lies the problem. Without marketing comms to drive trial, it is unlikely that most products will ever reach the critical mass of customer advocates required to drive rapid growth through WOM.
As in so many things in life, a blend of things is often better, in this case, marketing comms during introduction followed by support for WOM by customer advocates once the product start to move.
Of course, the product needs to be prety damned good too for this to work. Sadly, most just aren’t good enough to be worthy of recommending. And no amount of marketing will overcome rubbishy products.
Graham Hill
Independent Management Consultant
Coming from such an intelligent group, I have to say that I find this post scary.
Has it been that long since Geoffrey Moore wrote “Crossing the Chasm” that we have forgotten that Visionaries and Early-Adopters only make up 10-20% of the buying market for hi-tech products.
Moore wrote that this early market buys without needing salespeople to do much more than show up and not act stupid. Why? B/c they can map usage themselves intutively. The rest of the market is made up of mainstreamers and laggards who can’t map usage of complex products themselves. They need to BE SOLD.
Good marketers and sellers, therefore, are COMPULSORY, for a company to become anything more than a niche player or passing vancy.
Good sales and marketing organizations are needed because they help the other 80% of the potential buyers understand how the complex product or service can improve the buyer’s life – reach goals, overcome challenges, take care of issues.
(Yes, I feel rather passionate about this and I could go on all day. I think I know have my next blog topic…)
Sheesh!!
And if I could type and chew gum at the same time….
The last line above should have been either: “I think I now have my next blog topic.” or “I know my next blog topic.”
Adam, definitely looking forward to exploring this further with you. There are a bunch of sides of this, and your point is a valid one…assuming that individuals will continue to act the way they have in the past. They may, they may not. A lot of good stuff to explore and debate here.