An Engineer

In July of 2009, I wrote that Freemium did not work for Phanfare. I just re-read the pos and I want to revisit the topic of whether Freemium could have worked for Phanfare. Ultimately, that post concluded that for a premium product with few network effects, it was difficult for the economics to work. I stand by that conclusion, but I believe there were other options at the time and other considerations that I did not include.

First, since Freemium means giving something away to entice user sampling in the hopes of having them buy the product, by definition, Freemium is always possible if you give little enough away. That is, if we had given away downsampled photo sharing limited to 100 photos for example, the cost of the free service would have been low enough that it would not have represented much of a burden on the paying customers. Yes, it may have undercut our premium positioning.

Whether a very limited freemium offer is enough to create any user interest is a separate topic. But these types of freemium offers do succeed in the brick and mortar world. At a retail store, you can come in and browse for free. This is a form of freemium. You are consuming their HVAC and taking up physical space.

We did not explore severely limited forms of freemium Phanfare service and so can’t generally conclude that no freemium offer would have worked.

Second, I undervalued the ecosystem benefits of having a large user base, even if that base is not paying. Ultimately, your ability to strike deals with other companies depends on you having a lot of users. Want to be featured in a camera or promoted at retail? Your large user base is something you can trade on.

In addition, all the ancillary parts of the ecosystem only show up for systems that have large user bases. Apple TV, Roku and Nikon, Canon, Adobe; they only care about systems with large number of users. Hence, you don’t get to provide a full solution unless you have a larger number of users. A paid-only offering pretty much guarantees these ecosystem partners won’t to do business with you if you are in a space where only 5% of users will pay.

So looking back, I believe that we should likely have pursued freemium more vigorously by figuring out a way to offer something that could work economically. For Phanfare, that also might have meant ditching fullsize originals in general. And it might have made sense. It might have meant ditching the premium positioning entirely.

That said, if you are happy with a niche, small service, then avoiding freemium probably does make sense. And niches can make a lot of money. Apple takes home most of the profits in the smart phone industry while serving a small minority of the customers. Of course, that’s a huge market. But Apple has pretty much no freemium offer except maybe being able to listen to the first 90 seconds of ITunes songs for free on an ongoing basis.