Analysis says the free value-added model is heavy on products: Don't spend money on marketing

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Introduction: American Science and Technology blog Gigaom today wrote an analysis of the "Free value-added" (Freemium) model of five companies. The article holds that although the free value-added model differs from the traditional model, the development of products for users ' needs is still the key.

The following is the full text of the article:

In the eyes of some start-up enterprises, the key to the success of free value-added business is the following: Don't spend money on marketing; be sure to provide flexibility and data export services to avoid users regretting: ensuring valuable goodwill and making use of it; But at the free Value Added summit (Freemium Summit), which was held in the morning of Friday, the five leading industry companies in Pandora, Dropbox, Evernote, Automattic and MailChimp said The main reason for their success is still to provide the best products that users need, and to use the free value-added model to promote the product to a large number of users.

The so-called free value-added, refers to the provision of free services at the same time, with the upgrade option. The importance of this business model has become more prominent, but it is difficult to manage. Therefore, the experience of these enterprises has become a very valuable resource.

The reverse mode of Pandora

Pandora CTO Tom Conrad (Tom Conrad)

Pandora was launched in August 2005, when the service was very similar to the free value-added: users can listen to 10-hour webcasts for free after registering and then pay 36 dollars a year. Tom Conrad, CTO of the company, said: "In the first few weeks, our registered users up to 100,000 people, and the vast majority of users will be free of Tom Conrad 10 hours of service." After that, when we asked users to pay, they were evacuated in large numbers. ”

In November of that year, Pandora launched an advertising model. But this is just a name, because they do not have a advertising server, no advertising staff, and even the page has no place to advertise. But its use turned 4 times times overnight. Within three days, Apple called Pandora to buy the company's December advertising position. Conrad and his team gladly accepted the contract because the price offered by Apple was one months and 10,000 dollars. "We're actually using ' hard coding ' (Hard-code) to add ads to the page," he said. We don't want them to know, but every time they change their advertising ideas, we need to redistribute the entire site. ”

Pandora currently has 20 million independent users, earning 50 million dollars last year. The proportion of paid users is less than 1%, but the total number of paid users is still significant due to the large user base. Last year, the company launched a desktop application called Pandora One, which delivers higher-quality streaming media broadcasts and uses fewer restrictions. Pandora one currently has a registered user of 300,000, accounting for about 1.6% to 1.7% of the company's monthly independent user visits. The company is expected to contribute 15% of its revenue this year.

Dropbox Digital Games

Dropbox CEO Dru Houston (Drew Houston)

"Free add value is a number game, so throw away your spreadsheet," Dropbox CEO Dru Houston Drew Houston. The key is to find marginal benefits and to tap into a range of subtle values rather than a single key value. Houston also details how to use search marketing to attract users. The company found that keywords such as "online storage" (storage) prices were fired very high, and long tail keywords are relatively few. But users who visit the site through these keywords may not choose to have more storage space and a more versatile payment service.

This means that a product worth hundreds of of dollars will cost as much as thousands of dollars by clicking to get a valid paying user. So for a period of time, if a user accesses Dropbox through a search engine, the site will hide the free option, but it is causing trouble to the user and seriously impacting the user experience. Houston said: "The lesson we learn is that if you use a free value-added business model, your marketing costs are free users." "He believes that they do not know they need this service until the user has not used the Dropbox." "Search can be used to collect demand rather than create it," he said. ”

After abandoning the search marketing strategy, Dropbox began to grow rapidly. The company also recognises that user referrals are its biggest source of growth, so the company is encouraging users to recommend each other through a stimulus package. Houston said the move had led to a 60% per cent increase in registered users, representing 30% of all registered users who had been recommended by others. The company now invests 30% of its engineering resources to attract active users.

Houston also said it was consuming a large amount of costs as the company launched a feature for free and paid users that allowed users to undo historical operations without restrictions, and that the number was growing. But in fact, few users actually use this feature, which makes most of the cost of this feature wasted. But Dropbox is still wary of withdrawing the free feature. In order to ensure a smooth transition, they openly ask the user's intentions, so that existing users can keep the functionality according to their needs.

Key indicators of Evernote

Evernote Company CEO Fille Libin (Phil libin)

Evernote is a personalized note-taking service. Phil Libin, CEO of Fille Libin, said Evernote's challenge in trying to replicate the virus was that it was not a social product at all. But Evernote can focus on getting the most value from existing users. The company was established in June 2008, currently has 2.7 million users, a daily new user of about 7000 people. His said that despite the lack of social functions, most of the company's users were obtained through Word-of-mouth marketing. Evernote has 50,000 existing paid subscribers who can use the service on multiple platforms while gaining additional value-added services.

Evernote's development model is that inactive users are decreasing and active users are gradually starting to pay. His said that when Evernote openly sought partners, investment intentions and cooperation requests ensued. "Our main gain is that users are growing very quickly and their incomes are increasing faster," he said. "At present, the company's users are increasing by 10% a month, while the monthly income growth rate is as high as 18%." "Our users are like cheese or red wine-the longer the year, the better," his said. "Only 0.2% of users registered within one months have become paid subscribers, while 2% of those registered within one year have been converted to paid subscribers."

The key metric for his is to compare the income of each active user with the variable cost. From this point of view, the company received a monthly revenue from each active user of 0.25 U.S. dollars, but infrastructure, customer service and network operations, such as variable costs of about 0.09 U.S. dollars. He said that as long as the following three conditions, any enterprise can adopt the free value-added mode: 1 higher long-term user retention rate; 2 A product with increasing value over time; 3 has variable cost.

Other points of view

Automattic CEO Tony Schneitter (Toni Schneider) and MailChimp CEO Ben Chesnath (Ben chestnut) also added a few of their own experiences. Snite says Automattic is a blogger software company that makes different prices for different value-added services rather than a tiered packaging system, which allows his team and users to gain more flexibility. His company currently earns 40% of its revenue from value-added services, while the rest comes from advertising sales and corporate products. But he says the problem with the company's model is that it is difficult to figure out all the services, so users may not know what services they can get.

Chestnut says free products are likely to be abused. MailChimp is a 10-year-old e-mail marketing Enterprise, the company has just launched a free service 7 months ago, the user then increased by 249%, the number of mail sent from the previous 2 million to 4.5 million, the increase of 225%. Income is expected to increase by 200%. But there was also a problem in the process: spam and other abuses increased by 354%, and the company's legal costs increased by 245% in response to those who abused the system. Fortunately, the system developed by MailChimp can automatically handle some of the problems. In spite of the early preparation, the mass abuse caused by the free value-added model is still a surprise to the company. (PEI)