If you are selling Enterprise Apps you don’t start with freemium

I thought the word freemium went the way of singing fish and MySpace and hoped I never have to write yet another article with this portmanteau in the title. Unfortunately wrong ideas  and false beliefs don’t die easily. They are not replaced by some profound truth because the believers suddenly achieve self-realization. As Kathryn Schulz wrote in her book, Being Wrong, bad ideas die hard because they can only be replaced by another equally bad idea. Until another such bad idea comes around we are stuck with freemium.

This time we are presented with some profound advice on go to market strategy for Enterprise Apps by Scott Irwin from Rembrandt Venture Partners. In his article for GigaOm , Mr. Irwin recommends freemium as the first option for go to market strategy for Enterprise apps before inside sales and before enterprise sales.

Those who are already sold on the idea of freemium will see this as further evidence supporting their case.  Those who are new to the idea will likely see the popularity of the post as evidence for its veracity. Those like me are not going to be convinced as usual. The problem this time is the flagrant errors in the case Mr. Irwin makes by recommending freemium for enterprise apps.

If you stopped reading here, think about it – Enterprises have a budget and have wherewithal to pay. Why shouldn’t you charge for your value-add?

Now to the flaws in Mr. Irwin’s argument.

1. Ignoring Customer Needs: There is absolutely no mention of the customer segmentation and their needs. Why are customers hiring the Enterprise 2.0 Apps for? If you do not understand your target segment and their needs you cannot deliver them an effective product. And if there is an urgent your product fulfills why should you not charge for it? These are enterprise customers and they have a budget to pay for these apps that add value.
2. Ignoring Customer-Channel Alignment: Mr.Irwin starts out by making a case with Salesforce.com, a company I admire for its disruption of the enterprise software landscape and its marketing. But it should be noted that they very carefully chose their initial go to market strategy that aligned with how enterprises buy software – building an highly effective enterprise sales team backed by phenomenal marketing. It was not freemium that helped Salesforce.com grow to $3 billion a year company. Sure their product was easy to setup and use but they were not just fighting against customer apathy, they were competing against strong players with significant sales prowess. Do not for a second think freemium would help compete against entrenched players or serve as free marketing.
3. Choosing Irrelevant Examples: If the topic is about go to marketing for Enterprise Apps the examples used should at the very least use such companies. Not Evernote, a consumer based webapp. When it comes to freemium examples, for the past two years, there have been no other examples than Dropbox and Evernote. Such a model of try the free version and upgrade to premium may work in consumer segment (barely, only 3% upgrade to paid version) but the competition is not going to let that happen for enterprise segment.  In addition any such popular example also suffers from biases.
4. Choosing Selective Evidence:  Mr. Irwin makes a case using SurveyMonkey, specifically goading us to make app fun so users will use it. First, why should making the app fun be mutually exclusive to charging for it? What about many other applications that are fun to use and but not free. If we want to stick with the same application family as SurveyMonkey, we have SurveyGizmo which you know decided against freemium model to target enterprise customers. There are many other examples of applications that are fun to use and not free. By using selective evidence Mr. Irwin not only succumbs to biases but leads his readers down the wrong path.
5. Anything but Charging For Value: Rest of his article is presented as a recipe for freemium. If you did not have your segmentation right, you do not have your product strategy or go to marketing strategy right. Any other revenue model, however innovative it is, is not effective. Yes Atlassian and others adopted pay to charity, pay what you want, pay with WOM etc models. Likely these models were relevant for them because they started with right customer segmentation. But all those do not apply to your business.

Why are management gurus, entrepreneurs, startup gurus and now venture capitalists  dead set against getting fair share of the value they create for their customers?