When you decide to try out a new application, do you start with the paid version or the free version? Most of us start with the free or “freemium” version, because it seems to carry less risk. However, freemium apps often come with invasive ads, fewer features, and little hope of tech support. If that app is going to handle sensitive tasks, none of that is reassuring.
The good news is that a third option is emerging. Progressive functionality meets your needs as a user, solves some major problems for the app company, and even makes marketers happy. To understand why, we have to examine why the freemium model became popular — and why, in many cases, it began to fail.
The Tradeoffs of Freemium
Many people choose freemium because of the “free” part. But as the old saying goes, nothing is truly free. Say, for example, that you download the free version of the YouTube app. True, you will not be paying for it with cash, but you will be paying for it with something else — your usage data, which YouTube will then sell to advertisers. This does not make YouTube the bad guy though; like any other company, they have to make money. So, if you do not pay them with cash, they must find another way. With freemium versions, you are essentially choosing to give up something else instead of your money.
The freemium approach to marketing technology has pros and cons. On the positive side, it allows app companies to provide services to customers that might not be able to afford them otherwise. On the negative side, it often creates the need for a “full” paid version of the app, which means freemium customers know they are not gaining access to the full range of features.
The freemium model also makes it difficult for companies to build long-term relationships with individual customers, because it rarely involves contracts or purchases. It is great for gaining initial traction in the market, but at some point, the costs of converting those freemium customers outweigh the benefits.
For reasons like these, a growing number of companies are starting to either avoid freemium products altogether or gradually phase them out.
Phasing Out Free
One of the first companies to learn the freemium lesson the hard way was LogMeIn. This company provided a remote-connectivity app that they offered on a freemium basis; however, in 2014, they eliminated all their free offerings. Today, they offer only a paid product.
LogMeIn’s freemium products had been crucial for helping them gain a foothold in the early-stage market. Why would they eliminate their most popular offerings? Because those freemium products were not resulting in conversions.
Business users were a core part of LogMeIn’s user base. These customers did not take the idea of a freemium remote-login program seriously: they either bought the paid version outright or went with a competitor, but a freemium version of LogMeIn was not a serious option for them. LogMeIn’s freemium users, on the other hand, rarely converted to the paid version of the app, because they did not need all the additional features. The freemium version, in short, was not converting anyone, so LogMeIn dropped it.
The case of LogMeIn is not unique. While some categories of apps — games, for example — can convert from the freemium versions, business and productivity apps rarely fall into that category. Many app companies that target professional users are realizing that freemium versions of apps do not measure up to those users’ expectations. Furthermore, freemium apps may not motivate users to use the service on a regular basis, which also hurts conversions.
Freemium apps and paid apps are not the only two black-and-white options though. A third approach is growing in popularity.
A Progressive Approach
Progressive functionality has been picking up more adherents in the marketing technology space lately. The basic idea is that the customer pays an extremely small cost for the app, which in turn drives initial usage and helps build loyalty. Once the user has a sense of the benefits the app has to offer, they can pay a little more to upgrade to a version with more functionality and so on — all the way up the chain to the full premium version.
Many companies’ customers are responding positively to the progressive model — and it is not hard to see why. Users have witnessed what freemium options often result in — very few features, tons of pop-up ads, no tech support, and so on — and they are deciding that they would rather pay a small initial cost to receive ad-free apps that will be supported over the years.
Companies themselves are getting behind progressive functionality, too — and not just the companies that sell the apps. Market-analysis firms are also beginning to prefer the progressively functional model, because paid versions of apps are often designed to support detailed analytics on loyal customers instead of anonymous stats on unknown users.
Progressive functionality, so far, seems to provide value for everyone — app developers, customers, and marketers. Developers can rely on steady sales and simpler conversions. Users can try the app without paying full price but with the option to upgrade. And marketers can get detailed analytics on users without having to serve invasive ads. Progressive functionality grows with the needs of each of these groups, and it is poised to outcompete the freemium model in the near future.