[bmcnamara82]

Instead of saying that "free" plans don't work outright, I argue that they work for some type of products and don't work for other products.

He provided examples of niche products that so far, serve small markets. LessAccounting, Crazy Egg, - what is their user base numbers? One example he gives has a user base of 5,000 users. If you are a niche product, I don't think the free plan is ideal since you are serving a small market and need to build a user base before it makes sense.

Conversely, if you have an app that is going to get a really large user base, and I'm talking 'millions', then it probably will work (i.e. google, twitter, facebook, ect.). The example of those are far and few.

The other comment I would make is, maybe you aren't creating a compelling enough product to get a user demand that supports a 'freemium' biz model.

[revorad]

maybe you aren't creating a compelling enough product to get a user demand that supports a 'freemium' biz model.

That sounds backwards to me. It seems that most web startups are not creating a compelling enough product to get people to pay for it. So instead, they are trying to get famous by giving it away for free and try to run the business on measly conversion rates until they can sell the money-sink to a big company.

[michael_dorfman]

Conversely, if you have an app that is going to get a really large user base, and I'm talking 'millions', then it probably will work (i.e. google, twitter, facebook, ect.)

Actually, not. None of those are using a "freemium" model; they are all ad-based products. If your business model is dependent upon giving advertisers eyeballs, "free" is a great way to go-- but that has nothing to do with the topic at hand.

[bmcnamara82]

"Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base."

From Fred Wilson's mouth (he coined the term "Freemium")

[revorad]

acquire a lot of customers very efficiently

First of all, people who don't pay are users, not customers. Secondly, how are conversion rates of less than 2% considered efficient?

In the freemium model, even if cost of customer acquisition (COCA) for a free "customer" can be considered to be zero, Life Time Value (LTV) is increasingly negative.