Freemium

Bob Marsh, the CEO of LevelEleven, wrote an excellent article today on the WSJ’s The Accelerator’s Blog detailing some of the pitfalls of the “freemium” business model. See Don’t Give Your Product Away. Freemium is a business model by which a product or service is provided free of charge, but a premium is charged for advanced features, functionality, etc.

Mr. Marsh’s insight stems from his own company’s attempt to use the freemium model, an idea he describes as “horrible.” From my reading, Mr. Marsh’s criticism of freemium boils down to this:

If a customer doesn’t pay some amount of money — even an incredibly low fee — there isn’t a universal exchange of value.

First and foremost, people naturally value things that they pay for more than things they get for free. Second, if you choose to “give” your product or service away, then your customers essentially become your product. In other words, you derive value from leveraging your customers rather than your product or service. This creates a disconnect, or at least a complication, between your product/service, your customers, and the monetization  of both. This is not to say freemium does not work, but it can make the difficult task of running a business even more difficult.

Many attorneys and firms use the freemium model as a law firm marketing technique. For instance, a potential client visits the firm’s blog and is offered an essentials report or client memorandum. The idea behind this is two-fold: demonstrate expertise and allow the potential client to followup the report with questions. The method ultimately relies on the hope that clients will become reliant on the firm’s expertise and seek counsel on more complex issues that yield higher margins. While this iteration of freemium does not have quite as complex concerns as, say, a software, I wonder if freemium marketing in law may still encounter the ultimate issue of lacking a universal exchange of value? The client is not really giving anything up and therefore may not value the firm’s expertise as much as they would if they had to pay even a nominal amount for it. The client may not be as invested in the expertise. That being said, the success of freemium all depends on how it is used. Many attorneys have successfully used the freemium model, which highlights a difference between freemium in the world of software versus the world of law.

Advertisements

2 thoughts on “Freemium

  1. Dave

    “you derive value from leveraging your customers rather than your product or service” What exactly does that mean? An example would be helpful.

    Reply
    1. Pat Ellis Post author

      Thanks for the comment Dave. I myself am a little confused by that sentence looking back on it. I will think of a better way to explain it or delete it if I can’t figure out what I was trying to say. Thanks again!

      Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s