Three years ago I wrote a detailed piece on the end of freemium. In that obituary I called out these key things
- It is not a substitute for customer segmentation.
- Simplest way to monetize remains charging for value delivered.
- Examples used to support freemium are just examples, not proof. Those freemium companies are fading like Evernote or winning because they adopted strategic marketing like Dropbox.
- The Hershey’s experiment many use to support freemium is flawed.
In that article I shared some perspectives of Christian Vanek, CEO of SurveyGizmo, who then had gotten rid of freemium and strongly believed in charging for value.
That was then. This is now. Last week SurveyGizmo made news headlines by announcing a free version that offers unlimited survey question and responses. What does this mean to freemium? Are we seeing its resurgence among startups that are looking at all options to drive growth? Did my case fall apart because of SurveyGizmo’s decision reversal?
I recently shared my outsider view of why SurveyGizmo went back on its stated position and introduced free version alongside paid versions. To get a better perspective and understanding I virtually sat down with Vanek to quiz him on this change and his overall pricing philosophy.
At the outset nothing materially changed on his views of freemium nor is he giving up customer segmentation. What he shared with me, showed his vision, his approach to pricing and how transparent he is in teaching others his methods. You can see from Vanek’s explanation below, this is not freemium as it is customarily defined. It is a free version for a segment that will never pay for a survey tool.
What are the takeaways from SurveyGizmo pricing and its adoption of free?
- Pricing starts with customers – It is never about you or the competition. You start with what customers seek to do, what their options are, how do they buy and what is their budget. All these factors vary across different customers. In SurveyGizmo case some are just looking for a simple response collecting tool, while those with research tasks are looking for a sophisticated survey tool. Failure to understand this difference will result in disappointment for all.
- Those who seek free has many options – When you chase those users who prefer free you risk being compared against all those options and lose the opportunity to show differentiated value to your customers.
- Customers do not know the right price – This may sound as contradiction to the first point but it is the other side of the same coin. While pricing starts with customers they do not know what is the right price to pay for a product. They look for value clues and specifics like services offered with a product. They are influenced by nudges like High-Low pricing that shows a high price with strikethrough and a discounted lower price.
- Free is not secret to growth – SurveyGizmo recognizes growth is oxygen for a startup but free is not the path to it. They model almost zero lifetime value for those who choose free. “Very few if any of these users will upgrade”, says Vanek. If you understand the free users will not upgrade, there is no opportunity cost of lost revenue or reference price when it is time to upgrade.
- Understand all the costs of free– When they had free version SurveyGizmo found it cost them significant amount to support those users even though the marginal cost in software is zero. That meant degraded experience for paying customers or adding more costs with no return. A service model innovation, leveraging communities, took away all these costs to support free users. So they decided to reintroduce free.
- Use Free only to be part of conversation – The reintroduction of free was carefully decided not as growth source but to enable SurveyGizmo be part of the conversation. When people Google for “Online Survey tools” Survey gizmo is in the top 3 results. Offering the free version enabled them to be in the consideration set of those searching and increase awareness among others.
- Practice the right type of free – SurveyGizmo understands most who use a free survey tool use it in its simplest form. They want to ask 2-5 questions and get just about 100 responses. So they opened up both those dimensions and made no limits on number of questions or responses. The professional survey writers value advanced features like question logic and response error checking. These features are not offered in the free version so those who are willing to pay for the product are not tempted.
- Offer optimal versions – SurveyGizmo had just one version at a fixed price of $50. That was attractive to its existing customers but turned away new customers who were willing to pay but not the high fixed price. So they replaced that with a $22 and $85 versions.
- Always be experimenting – Vanek understands pricing is never done and it is not something we will all understand completely. The right approach is to be willing to change and always be experimenting to find the right price that delights customers and supports your business.
- Do not jail in customers – Pricing and licensing should never be about making life difficult for customers. If customers try to downgrade to free version from paid version, allow it. Make it easy for them to do business with you and do not use guards to fence them in.
These are great business lessons for any startup.