To Freemium or not to Freemium?

Call me old fashioned but shouldn’t a business make money? Seems obvious, but many Tech startups have been giving away Free services for years e.g  Twitter, etc. And they don’t have a fall back monetisation business model. Number of eyeballs first before a business model.. Times are changing with this downturn. VC funding is drying up with a US 61.5% drop. It’s back to bootstrapping startup basics and survival with a Freemium model. But not everyone agrees. There is much debate around the Freemium model.

“The best things in life are free, But you can keep ’em for the birds and bees, Now give me money, (that’s what I want) that’s what I want.” (1959)

The difficulty is “For the Google Generation, the Internet is the land of the free.” Some more mature web based businesses such as Salesforce.com don’t do free, offering only time limited trials. New startups like our Website Monitoring web app have to make a choice: Free; Freemium (the idea from VC Fred Wilson in ’06); or trials/premium. A free version is now almost expected in many markets to keep up with competition. Marketer Sean Ellis has gone as far to say Freemium will outcompete premium only offerings.

Its not easy to get the Freemium balance right. Give too much away for Free and you’ll have little/no revenues OR give too little away and the Freemium marketing model is ineffective. Dharmesh Shah of Onstartups believes the Freemium Model is challenging, (plus some of my own thoughts):

1. Functionality Mix – Its difficult to decide the functionality that you give away on the Free version and hold back on premium version.
   
2. Cost of Free users – Supporting a ton of free customers costs and there maybe not enough money coming in from paying customers to subsidize the free version. Support can also be a problem as ‘In the land of the Free’ users still expect a high level of support.
3. Premium version pricing – Premium versions need to have multi-tiered pricing with a very low cost starting plan to tempt users off the Free versions.
   
4. Poor conversion rates – From free to paid can be as low as 3% or at best 10% we’ve heard. Also users may try and work the system and share the free version between company users. Unfortunately many users will never pay for an app.
5. Higher attrition rates – Freemium attrition can be unpredictable and higher than traditionally priced products with premium users switching back to free versions.
   

TechCrunch is still endorsing Free: “Rather than launching a service with a freemium model, I think it’s important to gain a large and passionate user-base first.” Some startups say: “don’t offer a free plan!” Andrew Chen of YouSendIt.com has blogged about his positive experiences of moving from Free to Freemium with his 5 lessons learnt.

Its not an easy decision. Free means lots of users but no revenues (or a little from Ad’s) but the potential of something much bigger if you hit on that killer app. A 30-day free trial only option will result in real users who demand a high value proposition. At least then you will know if your app can be monetised. The Freemium model offers a half way house to gain traction and the opportunity to convert some users, which is particularly helpful during the early startup days. However Freemium is full of pitfalls if executed poorly.

With any of the price plans marketing an app take alot of investment/money. Even with Free plans sooner or later money will have to come in to pay the bills. There is no escaping it – monetise!

Aware Monitoring: The startup formally known as Viisys

When we set out on our startup journey we didn’t know what we were going to make. So we named our company Viisys, which is an abbreviation of Seven Systems (seven being in the roman numerals VII). The seven (vii) means the 7th step of enlightenment and Sys refers to Tech systems. Seven is also a lucky number but who needs luck?

Moving the clock forward  we have been enlightened and our new website monitoring app, Aware Monitoring will be released later this year 🙂 We’re now ready to change our name to reflect what our service does i.e. monitoring. We will now trade and be known by our product name, Aware Monitoring and not Viisys. This change of identity is not unusual. Our good friends Andy and Ali at Huddle.net started out as Ninian Solutions and now trade as Huddle.

Simon, my co-founder, recently posted that its really exciting to see our branding coming together. To complete the brand switch over I’ve now changed company name on my LinkedIN profile and email footer to Aware Monitoring. I’ve also removed the ‘About’ page on this blog and updated the ‘Who am I’ without reference to Viisys.

These changes have also been a chance to update my ‘about/Who am I’ as they felt a little ‘corporate’ and unfriendly. A summary bio is now also on the front page. Hopefully you’ll agree that the new blog bio is more straight forward and friendly.. Here’s the old version:

About

Innovations including the internal combustion engine, electricity and the Internet have radically changed our lives. I am interested in one thing and that is change, love it or hate it change is inevitable.

Market innovators and entrepreneurs drive business change through marketing strategies. We can only speculate on what the future holds, so join me on this journey to uncover how new software technologies may change the way we work and live.

This blog is for for marketers, technology innovators, fellow entrepreneurs and anyone else interested in new social media technologies and how they are affecting businesses and organisations.

The blog was formed by Nick Barker in 2008. If this is your thing subscribe to the feed and stay in touch.

Who am I

Having worked in the IT industry for 20 years I have seen many innovations and much change from the very early days of the IBM PC through to the growth of global outsourcing and today the rise of social media. My experience ranges from working in small owner manager firms to global software giants in a variety of sales, pre-sales and product management roles.

Today I run a start-up, Viisys, technology company with my co-founder Simon Oxley based at the University of Nottingham incubator facilities. We have just released a central website, E20portal.com, to inform firms of the value of Enterprise2.0 technologies. For more information check me out at LinkedIN or my firm Viisys at www.viisys.com.

And you can see the new one over to the right..

The spirit of Entrepreneurship

This is a great video! It’s viral but worth talking about. Micheal Acton-Smith Re-Tweeted the link last week.  The video is very well made and makes some good points.

The term Entrepreneur has many different interpretations. Unfortunately academics can’t seem to agree on a definition. The press often put Entrepreneurs onto a heroic pedestal. They tend to focus in on the big risks and the big winners. Like the video I believe we are all Entrepreneurs. The essence of Entrepreneurship is about experimenting and learning. Which most of us did alot more of as ‘kids’.

Companies can also be entrepreneurial. Some organisations learn and adapt better than others. Universities can even be entrepreneurial risk takers. Employees don’t even have to leave their jobs to be entrepreneurial. Just as long as they are learning and growing. Why can’t an employee dream of over coming difficult challenges, making a difference and a better world? They can! However the problem comes when employers hold back employees ideas.

Unfortunately organisations often don’t let employees experiment and innovate. Business politics gets in the way of trying new things. Employees can then loose their individual entrepreneurial spirit and the job becomes a 9-5 routine. Being self employed holds a dream of hope for many. However the risks can seem just to high to leave. I’ve heard this so many times, “I wish I could have my own company”.   The answer in this video is that you can. You just need to be prepared to try out new ideas and learn fast.

Elevator Pitch 2.0: Are you Listening & Learning?

I took part in another pitch competition this week and didn’t win, yet again.  However I learnt alot more than the previous pitch. The first pitch was to a camera in a booth. Unfortunately I received no feedback from the judges. How can I improve if I don’t get feedback! This weeks two minute Nott Tuesday pitch competition was to a live panel (Mike Butcher The Editor, Doug Ashby The Entrepreneur and Duncan James The Lawyer). They gave me some excellent feedback during a three minute Q&A to learn from.

Aware Monitoring looking more  like Rappers (photo by Nick Walker)

Here’s a link to all Nick Walkers’s event photographs. The pitchers at the event were (in presenting order):

1. Simon Oxley and I from Aware Monitoring with our Website monitoring and Web infrastructure monitoring service. Click here for our pitch slide deck on Slideshare.
2. Darren Ramowski from golfshake.com, who’s a really nice bloke,  gave a very relaxed pitch about his great golf website. The judges loved Golfshake and its international potential. Time for Darren to learn how to go Global now!
3. Next up was Kamran Hussein from Buyers4Cars with an innovative startup that allows car buyers rather than sellers to advertise their vehicles.
4. Tadhg Kelly from Simple Lifeforms have just released their first social game and I’m sure they will go very big with this game or one of the next games they’ve line-up.
5. Last, but no means least was Nik Le Page who pitched an idea on online profile management. Nik won an extra award because he was a last minute and enthusiastic entrant.

I’d like to have come first in both pitch contests, who wouldn’t. However there is probably more to gain from not winning. Sore looser you may think. But learning often means putting yourself in a difficult situation where you will be challenged and probably won’t succeed. We have to go out of our comfort zones to learn. It’s the hard lessons that often have the most impact.

Pitching is a vital skill for any startup. As founders we need the ability to effectively pitch to everyone: investors; journalists; customers; partners; co-workers; etc. Therefore we’ve got to work hard on our pitching skills. For more tips on pitching listen to Tim Berry (Angel/Entrepreneur) and his seasoned advice.

All situations in life can be learnt from whether we win or loose a business pitch, customer deal, sports competition or our new product is a failure. Only by listening and learning from the challenges we can improve. The business coach Brad Sugars said something that stuck in my mind – “work on yourself as much as you work on your business.”

Growing as an individual is about Lifelong Learning – “the pursuit of knowledge is not confined to childhood or the classroom, but takes place throughout life and in a range of situations”. So what have I learnt from my Pitch 2.0 feedback? I’ve understood the importance of being relaxed, spending more time on what the product is, our forward strategy and the investor greed inducement.  Until the next pitch! Which is going to be real soon with a National Pitch competition. I’m a sucker for punishment 😉

The Creative Destruction of design

Whether we like it or not competition is inevitable. It’s the bedrock of our capitalist system – The Free Market. Whilst existing competitors try and out smart each other (Like the BMW/Audi Ad’s below) new entrants will also challenge an industry structure. Schumpeter calls this “Creative Destruction”. In the Free Market customers will pursue the most attractive deals. Kodak famously ignored customer preferences and lost their majority market share. The big record companies have vigorously fought change. They’ve even sued their own customers! The traditional design industry is now being challenged by a new type of entrant – ‘Free Pitching’ marketplace providers 99designs and Crowdspring.

Competition is a bitch

In this difficult environment what should an incumbent industry do about a new emerging structure, driven by a new type of competitor:

1. Ignore the challenge
2. Fight the new structure
3. Adapt to change

As a design customer I’ve been drawn into the ensuing battle. The design industry is up in arms about this new type of supplier. Our website monitoring startup has used one of these new suppliers. The outcome was good and we’ve told others about our experience (p.s. I’m not affiliated with 99designs). When I’ve commented on the web its been responded  rapidly by the design community:

• A post referring to our experiences on the Enterprise Nation home startup blog was commented on by designer Damon Trasatti and linked to The No-Spec campaign.
• An email response on the London OpenCoffee Meetup group linked to The Design Institute of Australia and their views on ‘Free Pitching’ and to The Design Council statement.
• Ryan Carson tweeted recently: “@99designs and @crowdspring are forces for evil, not good, in the design industry.”

There is tremendous passion from the design community in fighting the new entrants. A steaming post entitled 99designs: Bullshit 2.0 said:

“Those “savvy clients” just got a shitty design, the winner got some shitty pittance for their effort, and all of the other shitty designers got jack shit for their shitty work.”

Perversely, this huge effort and passion in battling off the likes of 99designs is increasing the new entrant profile. It has become a talking point and thus the message becomes even more viral. It seems an increasing number of design customers are trying these new design marketplaces.

Perhaps this is the start of a major shift within this industry, it could simply be market segmentation or maybe its just a fad. Rather than designers fighting, which wastes time and energy, why not understand the customers changing preferences and change business models. This does not mean doing the same as the new upstarts but do it better. Like BMW customers, clients will always pay more for a better quality of service.

Changes in technology, law and customer preferences that effect market structures are inevitable. Change can either be fought or embraced. Seth Godin recently said:

“viral marketing means that you can spread an idea farther and faster than ever before. It also makes it far cheaper for a competitor to enter the market putting existing players under significant pressure from newcomers. This business model revolution is just getting started. It’s’ not too late to invent a better one.”

Some designers such as Doug Lyon from Mash Interactive seems to be embracing a new business model. Doug: “We do not charge for work , rather,  we invite our clients to pay what they can afford”.

Aware Monitoring: We’re in good company with ‘web infrastructure monitoring’

Just picked up on in-bound searches for ‘web infrastructure monitoring‘ hitting our Aware Monitoring launch page. This is what I found when I entered this search term. Can’t believe we’re 3rd!

Our tiny little bootstrapping startup, which is even without a product, is nestled between two IBM responses.  IBM must be worried 😉 Of course, we are not in the same league or market. Still it shows the power of Search. Thanks Google for the vote 🙂

Tips and Tales from the Brads (Brad Sugars & Brad Rosser) PART 2

In this follow-up post (click here for Part 1) I explore Brad Rosser‘s ‘Survival Tactics’ from his talk. Remember both Brad’s are Australians who run business coaching companies. Brad gained heaps of experience starting-up several Virgin Group companies. These include the unsuccessful Virgin Cola and highly successful Virgin Vie At Home. He had some useful advice to share:

Brad Rosser

Brad is a sales and marketing crusader! He’s a no-nonsense straight talker who uses war like Sun Tzu strategic mantra. He’s a survivor. Brad plays heavily on his  experiences working for one of the worlds best known entrepreneurs, Richard Branson . I’ve worked closely with two of Branson’s companies in the past (V2 Records and Virgin Radio) so I’m always intrigued to learn more.

No, not Brad Rosser but another Ozzie
surviving in the city

Alot of Brad’s survival strategies are built around a strong sales and marketing focus. Having great sales and marketing skills is vital to any startup. The CEO must be the first to sell. As Ed Iacobucci, founder of Citrix said, “Nothing happens until you sell something.”

1. Your business idea must be “bullet proof“- Brad’s right an idea MUST be commercial and well thought out. However it’s never really going to be ‘Bullet proof’. Change is too constant especially in the  Tech sector.
2. Don’t wait for the perfect anything – Excellent point! A idea is only a science project until its out with customers. Brad makes a good point which Rachel Elnaugh also made – get a good product/customer fit and then ramp up sales. This requires a customer testing/feedback loop. We’re very keen to get our new web infrastructure monitoring service in customers hands.
3. Wasting money in a start-up is a crime – I agree bootstrappers must become lean mean fighting sales machines! Bootstapping can make fitter startups. I’ve learnt the hard way startups should not waste time. After all, time is money.
4. ”Prepare for battle” – The army’s 7P’s saying ‘Prior Planning and Preparation Prevents Piss Poor Performance.’   Marketing starts with a Sales Crusader with a good plan.
5. Use PR to build credibility –Everyone likes a good entrepreneurial story. Branson famously will go to any length to get free PR. Would you? There are lots of PR opportunities out there they just take time and nurturing.
6. Everything is a negotiation – Sales tactics again or used  in reverse if your the buyer, employer or need investment.
7. Securing funding is not just about getting your hands on any cash you can – The right deal and the right VC!
8. Cash is king! -Both sales and cash flow is the lifeblood of any small business. I’ve heard this so many times. Don’t forget Cash is King!
9. Don’t waste time, money and effort trying to build a brand during the early days of your business. – Again get out there and start selling. What you waiting for?
10. Recognise when it is time to ‘shoot the entrepreneur’ – A hard choice. Not all entrepreneurs can manage a growing business. Recognise this before the VC does and kicks you out.  Don’t be afraid.

Another good talk from an Australian with lashings of Pommy jokes and some useful points. You can catch Brad’s full video talk here. Interestingly Brad Sugars uses the franchise business model for his coaching company. Whereas Brad Rosser’s business is centered around the founder (Brad) like many high profile companies including: Steve Jobs’s Apple and Branson’s Virgin. The question is can these companies survive without the founder?

Microsoft profits tumble: Big switch tipping point?

Is this the Tipping Point from on-premise software to software as a service? On the same week Microsoft announced a 32% drop in profits Apple reported sky rocketing profits.  Still the Redmond giant has a long way to fall. It makes a cool $1b Nett profit every single day! However, this is a striking contrast in fortunes during a recession. The downturn is acting as a catalyst of change and speeding up the Big Switch to cloud software services. The way we access and use technology applications is changing.

At the heart of Apple’s iPhone success is the App Store and iTunes. Apple is successfully up-ending how music is distributed and how mobile phones are used. Microsoft’s poor financial results also follows the closing down of Microsoft Encarta last month. Microsoft gave up the fight because its traditional software could no longer compete with the likes of Wikipedia. The good and bad news keeps coming thick and fast. Only two months ago the SaaS CRM provider Salesforce.com reported a 34% increased in revenues and broke the philological $1b revenue barrier.

Its far too early to write Microsoft off but can the giant keep up with the increasing rate of change? Microsoft has rarely lead from the front but they have turned around and court up in the past. Microsoft’s response to the Cloud Computing Big Switch is Azure. The challenge for Microsoft will be to move away from its reliance on software licence revenues to a service based model. I’m not entirely sure they will be able to pull this one off..