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.”)
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Christopher Carfi, CEO and co-founder of Cerado, looks at sales, marketing, and the business experience from the customers point of view. He currently is focused on understanding how emerging social technologies such as blogs, wikis, and social networking are enabling the creation of new types of customer-driven communities. He is the author of the Social Customer Manifesto weblog, and has been occasionally told that he drives and snowboards just a little too quickly.
