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Is Freemium A Fad?

By Victoria Barret
Forbes.com
February 10, 2011
Egnyte co-founder CEO Vineet Jain read my story about how Box.net and others are gaining traction in the business software market by giving away chunks of their offerings, free. He disagreed with the idea that selling software “freemium” style is the road to riches, and was bold enough to spell it out for us in a guest blog post titled, “Why Freemium Isn’t Free”.
I applaud Jain for detailing an opposing view, and doing it elegantly. His main point is that the costs of supporting “free” customers is anything but free, and a potentially damaging drain on the real paying ones.
That makes sense, and yet, I dare say it: this time around it might be different.
Box.net and others do have to spend to support free customers, but they also save on getting to them in the first place. There’s less upfront marketing and sales expense than if they’d have to convince IT departments to adopt their technologies from the start.
I reached out to Aaron Levie, CEO of Box.net with Jain’s piece and had this to say: “Our marketing and acquisition costs are substantially lower than traditional enterprise software or hardware companies. This is because the product spreads virally, something you can’t get with the friction of a pay-only service.” Levie also points out that while he does have to spend on every new customer in the form of data storage costs, those costs are dropping dramatically.
Freemium has failed in the past, as Jain points out. Again, could this time be different? There’s more willingness than every on the part of all of us (workers) to try out new technology related to our jobs without the blessing of our IT departments. We load apps onto our iPhones, and now we’re doing this on our work computers too. This is a massive mindset shift.
Then it is up to these freemium players to convince the upgrade is worth paying for. (Xobni will eventually get me, when it suggests an email address I desperately want to see, but doesn’t show me the middle letters…)
Marc Benioff is making a bet on freemium with the newly-launched version of his collaboration software, called Chatter. Then again, he’s also running Super Bowl ads to increase Chatter’s reach – thereby reducing that freemium benefit I mentioned earlier.
I bet we’ll see many more larger business software vendors doing some versions of freemium offerings. Meanwhile, time will tell whether the little guys can rise above the burdens Jain describes.
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