Taxonomy of Seven Different Models of Freemium in B2B SaaS

Taxonomy of Seven Different
Models of Freemium in B2B
SaaS
A presentation by SaaS Marketing expert and
Growth Hacker Lincoln Murphy of Sixteen
Ventures

You think you know Freemium
in SaaS? Think again!
In 2009 I released the version of “The Reality of
Freemium in SaaS” PDF and since then the “Freemium”
landscape in SaaS has continued to evolve rapidly.
Freemium use in B2B technology / software / SaaS /
Web Apps / Cloud is rapidly evolving and I wanted to
take note of where we are at today… where we’ll be
tomorrow I can’t tell you, but I guarantee it will be
different.
Copyright© 2013 Lincoln Murphy. All Rights Reserved.

Why do we need this list?
I wanted to also call attention to the fact that the use of “Classical
Freemium” – the idea of a free version of a premium product – is
losing popularity as the go-to method for adopting Freemium, with
other types of Freemium coming into play.
This is with both pure-play startups and established companies
moving to Freemium.
I’ve made a list of the 7 different types of Freemium below, but this
isn’t meant to be an exhaustive list… if you have other ideas,
please share them in the comments.
What I’ve tried to do here – more than anything – is indicate that
there isn’t just one way of doing “Freemium” and maybe to a larger
extent show the term “Freemium” is used even when there isn’t a
clear Free > Premium path.

The Hybrid Freemium Model
Few companies will tell you they conform to any of these, which is
great… they shouldn’t be trying to conform to these “types” but
instead do what is best for their market, users, customers and
their company.
I even had a hard time deciding where to put certain companies –
like Evernote and SolarWinds – because they don’t nicely ﬁt in one
“type”. But I don’t think that makes these “types” any less relevant.
In fact, many of these “types” of Freemium aren’t exclusive within
a single company. The most successful models use a hybrid
approach, for instance using the Freeware 2.0 & Ecosystem
models together.

Presentation Source
This presentation is based on my popular “There are 7
Types of Freemium and Why That Matters…” post...
you can ﬁnd a lot more detail on the techniques and
ideas presented here:
http://sixteenventures.com/seven-types-of-freemium
The presentation continues ☞

Freemium Pyschology
Pretty much, if there is a “free” component to a marketing
strategy these days, it is called “Freemium.”
Where most companies go wrong is when they confuse
“Free Trials” with “Freemium.” If you think Freemium is just
an extended “try before you buy”… you’re in for a serious
rude awakening.
There are MASSIVE psychological differences between “Free
Trials” and “Freemium” that you need to understand. But for
now, just understand what I am listing here are “Freemium”
and not “Free Trials” and that confusing the two will cause
massive issues and probably not give you the results you’re
looking for.
Copyright© 2013 Lincoln Murphy. All Rights Reserved. http://sixtenventures.com/

Freemium Type 1: Traditional / Classical
Free-forever feature-limited-but-usable version of a
premium product
The one that started it all
The one that most people know
The one with the major penny-gap issues
Expectations that most users will never buy – by both
the vendor AND user
Examples: Expensify, LogMeIn

Freemium Type 2: Land & Expand
Also called the bottom-up approach
Free to acquire by users; Monetization at organization
level
Where the user & buyer are the same, the model uses
a lock-in model to gain a foothold within an
organization
Expectation by vendor is after x % users in a company,
they’ll pay
Examples: Yammer (Acquired by Microsoft in 2012 or
$1.2B), Dropbox, Box

Freemium Type 3: Unlimited “Free Trial”
Not really a “Free Trial” – the vendor likely doesn’t understand
the true dynamics of Freemium (which will likely come back to
haunt them)
Free-forever feature/usage/UX-crippled version of a premium
product
Expectations by vendor are that they user will convert/upgrade
Expectations by user is continued-forever use for free
This seems like a risky type of Freemium to adopt since it is
mixing the elements of a Free Trial with the psychological
aspects of Freemium.
Examples: Echosign, Basecamp

Presentation Source
Remember, this presentation is based on my popular
“How to Develop your SaaS Pricing Model” post... you
can ﬁnd a lot more detail on the techniques and ideas
presented here:
http://sixteenventures.com/develop-pricing-strategy
The presentation continues ☞

Freemium Type 4: Freeware 2.0
Free-forever, fully-functional product
This is their main product or a completely new stand-
alone product line within a larger organization
No expectations of conversion/cross-sell by MOST
free users
Monetization is through add-ons for the free product
created by the company itself
Examples: Evernote, Skype, AVG

Freemium Type 5: Alternative Product Strategy
Similar to Freeware 2.0, but from a company with an
existing premium product-line of which this is a discrete
subset.
A Free-forever product with no direct up-sell path to
“premium” version
Often used as a foot-in-the-door strategy
Goal is to cross-sell other offerings from the company
Examples: Autodesk’s SketchBook Pro for iPad,
join.me (a product of LogMeIn), SolarWinds

Freemium Type 6: Ecosystem
Free-forever base product
Monetization occurs through revenue share with 3rd
parties, like add-ons by 3rd party developers
Examples: iTunes, Google Apps, many commercial
open source vendors leverage this plus professional
services for monetization

Freemium Type 7: Network Effect
Monetize eyeballs, aggregate behavioral data, etc.
This is the idea – to whom I cannot ﬁnd original
attribution – that if you aren’t paying for the product,
then you ARE the product. Or you’re creating the
product through your use of the system.
Examples: Spiceworks, Google (advertising), Wave
Accounting

Presentation Source
Remember, this presentation is based on my popular
“There are 7 Types of Freemium and Why That
Matters…” post... you can ﬁnd a lot more detail on the
techniques and ideas presented here:
http://sixteenventures.com/seven-types-of-freemium

Thank You!
Lincoln Murphy
Sixteen Ventures
lincoln@sixteenventures.com
http://sixteenventures.com
@lincolnmurphy

Taxonomy of Seven Different Models of Freemium in B2B SaaS

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