WSJ Examines the Darker Side of Freemium

"Freemium" apps have been a success story for the likes of Dropbox, LinkedIn and Skype, but what happens when the strategy bombs? That's what a new Wall Street Journal report attempts to find out.

The Wall Street Journal has a fascinating report this week on how the "freemium" model doesn't always pan out for businesses, even as more and more of our favorite apps start to take the plunge into such waters.

"Freemium" is the term used to describe an app or service that baits users with a freebie, then once they're hooked, lures them toward the paid service. This strategy has worked well for countless companies -- but that's not the case for everyone.

Chargify LLC is a billing management software provider who launched in 2009 with the freemium model, giving away its wares to merchants with less than 50 customers per month. Unfortunately, the majority of its users never moved up to the $49 per month paid option for those with more than 50 customers per month.

Nearly bankrupt, Chargify soon ditched the freemium model and now has more than 900 paying customers with a starter plan of $65 per month, which co-found Lance Walley calls "the best business decision we ever made."

Among the success stories is Evernote, who offers a Premium version of its free note-taking app for $5 per month or $45 per year but has managed to thrive with fewer than one percent of its users paying within the first month, which eventually rises to 12 percent after two years.

"Freemium needs time to work," explains Evernote co-founder Phil Libin. "You can't use it for something that's a very hit-driven business." Nor is it surviving on users alone -- the company has raised more than $100 million in venture capital during its first four years.

"Freemium is really a construct of the digital age because there's almost no marginal cost to digital goods," concludes Chris Anderson, author of Free: The Future of a Radical Price.

Does that mean we can blame Google?

Follow this article’s author, J.R. Bookwalter on Twitter

(Image courtesy of The Wall Street Journal)

 

Tags: NewsAppsBusinesscloud servicescustomersDropboxEvernotefree appsfreemiumPremiumWall Street Journal Here's What You'll Get:The latest Apple news, reviews and how-tosThe hottest articles from MacLife.comYour recommended daily dose of awesome Also, send me e-mail announcements and special offers from Mac

View the Original article