Is there value to one customer from other customers using the product? This will determine how many new users the free users will refer. There are three levels of value of [[Network effects]]:
* ''Inherent value''
** You can use Skype only if the person you talk with also uses Skype. You can share a Dropbox folder only with other Dropbox users. In this case, Freemium can be a powerful strategy.
* ''Added value''
** You wouldn’t want to be the only user of LinkedIn. You derive value from other people using it. In this case, Freemium can help you gain traction if you use an effective invitation mechanism.
* ''No value''
** You don’t care if someone is using Evernote or not. The only reason for one person to tell another about the product or service is if they think it is awesome.

One of the key factors in making Freemium work is the structure of the offering. What is it that you offer for free vs. charge? There are different types of freemium business models:
* ''True Freemium''
** Give a version of the product for free and charge a fee for the other versions. There are two ways to go about this:
** ''Value based''
*** The most successful type of Freemium strategy. The more a customer uses the product, the more value she derives, the higher the switching costs are, and at some point she’ll hit a usage limit and convert to a paying customer. Evernote and Dropbox are beautiful examples of this.
** ''Characteristic based''
*** Example offering the product for free for one user (so it is based on company size for instance). Let’s think about a B2B application. If I’m a freelancer, I will use the application forever and I will never have to upgrade. If I’m a 3-person company, I can’t add more users and try the application for real.

Possible ways to limitate the 'free' version:
* Feature limited (e.g. a "[[lite]]" version of software)
* Time limited (e.g. only usable for 30 days)
* Capacity limited (e.g. for an accounts package, can only be used to create 10 invoices)
* Seat limited (e.g. only usable on 1 computer rather than across a network)
* Customer class limited (e.g. only usable by educational users)
* Effort Limited (e.g. all or most features are available for free, but require extended unlocking which can be shortcut for a fee)
Sat, 05 Nov 2011 20:26:26 GMT
Sat, 05 Nov 2011 20:26:26 GMT