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The Future of 'Freemium' for SaaS

Published 2 years ago

The 'Freemium' business model in the software industry has been around in different forms since the 1980s. When software as a service (SaaS) took off, different 'Freemium' strategies were utilized to help achieve the model's main objective - attract as many users as possible by giving away certain aspects of the software while monetizing on other aspects. Some of these stategies include 'Land and Expand' - frequently used with enterprise software - which monetizes at the organization level. Other strategies include Free-Forever / Ecosystem which monetizes through add-ons and Classical Freemium which limits users to limited but usable versions of the premium product. There are actually many creative patterns out there for monetizing features and functionality of a SaaS product. 

Marketing

If a software company thinks their product is good enough, using a 'Freemium' strategy suggests that a sales team isn't necessary since getting the user's foot in the door is enough to let the software sell itself. This has been the approach for some very successful organizations such as Amazon Web Services, Yammer, EverNote, and MailChimp. Yet, recent studies suggest that more SaaS products are ditching the 'Freemium' model and going back to the old tried and true marketing approach. It seems in this day and age SaaS products don't sell themselves as well as they used to. 

What is Good Software Worth?

What has occurred to shift our thinking on how we value software? There are many different factors involved when choosing the right business model for selling a software product. How unique is it? How flexible is it? Will the product increase in value over time for the user? How many services can be monetized? There are hundreds of factors that go into evaluating a software product, however, the single most important factor is it's demand. Only users can dictate this and that is why a 'Freemium' model is so risky. There is also some exploitation as many new companies in recent years pushed their solution with a 'Freemium' model. To a degree, some users see these options as just another 'Freemium' solution - been there, done that. Don't get me wrong, 'Freemium' will not be totally abandoned. There will be a product with perfect market conditions and valuable premium services converging to create the perfect storm in terms of 'Freemium' marketability. In general, however, users are beginning to sense that 'free' shouldn't be part of the equation for a truely innovative and useful product. 

AUTHOR Brent Smith

Brent Smith, a graduate of the University of South Dakota, has been with Smart Software Solutions since December of 2007. He holds a Master's Degree in Computer Science and a B.S. in Mathematics.  He currently resides in Pierre, SD with his wife and two sons.  In his spare time he enjoys reading, watching baseball, and playing in a local cover band.