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The value of free(mium)

There has been a lot of talk recently regarding the freemium business model. A recent article in Entrepreneur interviewed Jason Fried and I regarding our experience. While Jason and I seemed to have different views, the value of free is basically the same. If you have something of value, people will pay for it.

Where free succeeds

Where the “free” model plays an important role is not the fact that it is free, but the ability to prove your product. The “try before you buy” concept is not new. By offering a free plan, you give your potential customers a risk-free opportunity to try your product. This can go a very long way compared to “30 day trials” or a well designed marketing site.

The other area where free has value is word of mouth. The majority of our accounts are free, while this puts load on our system and support, it also creates a loyal base of people who rave about our product. We’ve seen many examples of freelance developers on free plans who then convince their clients to use Beanstalk on a paid plan.

Finally, the last point of value is about creating movement. When we started Beanstalk, our goal was to convince more people to use source control and improve their process. It amazed us how many people still did not have proper source control for their projects. By offering free plans, each account is a small triumph for our goal. The “greater good” value eventually brings back more value to the business as more people use source control.

Where free fails

With all that said, there are definitely cases where free does not work. I was doing a quick review of our stats and noticed something interesting. We get a nice number of visitors from stackoverflow.com. One post in particular sends the most traffic, which is titled Free Online Private SVN repositories. Here are some stats for a given period:

  • Visitors: 2,617
  • Free sign ups: 728
  • Paid upgrades: 6

By breaking these numbers down into conversion rates we see some interesting results. First, the conversion rate from visitor to sign up is huge, almost 28%. The conversion from sign up to paid on the other hand is awful, only 0.8%.

What does this tell us? It’s pretty obvious, people who are looking for free will most likely not pay in the long run anyway. If we don’t offer enough resources at the free level, they will probably just go somewhere else. Knowing this, it helps focus attention on the people who are looking for value and willing to pay for it and service them as best as possible.

Learning from the numbers

We are just beginning to understand the details and still have a lot to learn. We’ll continue to review results and study conversions to help make our products more profitable. In the long run, this helps us grow our business and expand our offering for our customers. We’ll be sure to write the results here as well.

Do you run a web product? We’d love to hear your results as well. Please share in the comments.