Zoom CEO Eric Yuan.
Slack, Atlassian, Zoom, and others have all grown exponentially thanks to freemium versions of their software. But that free model is waning, and the cloud software industry is showing signs of exploring new pricing strategies.
The freemium model lets you get started with cloud apps for free, but usually with limited functionality. This free-to-start strategy is a proven and effective way to attract new users, and hopes people who have tried it will recommend it to their colleagues and others. The ideal deployment would be for the company to purchase a paid version after the employee has tried the feature.
Many cloud software companies still use the freemium model, but research by US investment bank Vista Point Advisors shows that the model is slowly fading away, and the Inc. 5000 list ( Note: Only 15% of SaaS companies on Inc. magazine’s list of the fastest growing private companies in the U.S. offer some form of freemium product.
Vistapoint said other models are being explored in the cloud software market, such as pay-as-you-go pricing, where companies pay for actual usage rather than a monthly fee per user.
Alternatively, there is a move back to the traditional sales model, where customers pay per user until they add more users, then negotiate a discounted enterprise contract.
Vistapoint managing director Mike Lyon told Insider:
“When several employees in the same company start using the product, there are cases where the company calls and says, ‘There are 15 people using the product now, so I want you to sign up for an enterprise contract.’ For companies with a certain number of users, it is easy for software companies to explain the attractiveness of their products and sell them further.”
Why freemium is dying
Software companies are now focusing more on revenue retention rate (NRR) than on user count. They want “quality” users who will stick with their product for the long term. Lyon points out that freemium customers churn more and customers don’t stick around.
In the early days of SaaS, pioneered by the likes of Salesforce in the early 2000s, it was harder to convince customers to adopt new cloud apps.
Many cloud companies have embraced the freemium model to demonstrate the value of their products and ultimately get people to pay. The freemium model has become a pivotal way for cloud companies to acquire customers.
But now that companies are using a range of cloud software products, the need for freemium is diminishing, Lyon said.
Since many freemium products are supported by advertising revenue, customers may perceive freemium products as spam and low-quality products, Lyon adds.
“The higher the quality of the product, the less need to use the freemium version,” he said.
Clients may also be concerned about the loss of sensitive information and the invasion of privacy by free software, according to David Linthicum, chief cloud strategy officer at Deloitte, a major U.S. accounting firm. .
Some say freemium is still growing
However, software such as Zoom, for example, was provided free of charge, so it became a big hit during the corona crisis. Freemium allows the product to grow without a large sales team.
Eric Christopher, CEO and co-founder of SaaS management tools vendor Zylo, said, “The idea of getting a $100,000 software deal for one free trial is now a reality. It belongs to,” he tells Insider.
Linthicum believes freemium will continue to be a popular model among many software companies. This is because remote work requires a variety of cloud software, and many people want to try the tools before purchasing.
“People understand that the landscape of work is changing, and they know that remote work will continue to be a reality,” Linthicum said, adding that they should “keep their eyes wide open” when purchasing the premium version. He concluded that he would consider it.
*This article first appeared on October 21, 2021.
[original text]
(Translated by Yukari Watanabe, edited by Ayuko Tokiwa)
Source: BusinessInsider
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