Startable – Healy Jones’ & Prasad Thammineni’s Blog

Lincoln Murphy, the well known SaaS Marketing guy, got pretty upset at a recent TechCrunch piece on the freemium pricing strategy that posted this weekend. Lincoln says (I’m on his email newsletter list; it’s pretty good): “In a nutshell the Complete Guide to Freemium on TechCrunch is a post by someone who got lucky enough to get their post accepted so he can get a backlink to his site from TechCrunch and where he takes the results of studies and some words from high-profile VCs and weaves it together into a post for the TMZ of the tech industry.”

Ouch. That’s a little harsh. The article isn’t bad at all. The conclusion is 100% great, actually.

What is Freemium?

However, I don’t think it’s the Ultimate Guide to what is a actually a pretty complicated pricing strategy. I happen to disagree with the author’s ideas that a time based free trial = freemium. I can’t tell if my disagreement is a big deal or not – his company, FutureSimple, has a free trial offer, so it’s hard to know how much of the piece is using that as the basis for the post vs. a couple of professors he references. I disagree with the idea that a free trial is freemium so much because OfficeDrop recently made the switch from a free trial to having a free forever plan and we called it “going freemium.”

My definition of freemium is that a user will have the opportunity to use the service/software/whatever forever without having to pay for it. It may be a limited plan or limited features, it may be ad supported; whatever. It just means you can use it for as long as you’d like without paying. FreshBooks has a freemium model, but you run out of “free” pretty quickly. You can jump through hoops to keep it free, but most likely you’ll upgrade. A free trial that expires after a set number of days doesn’t meet my definition of freemium.

OfficeDrop’s free plan is driven by our mobile distribution strategy. I write a little bit about why we think apps are taking over here. But you should listen to my conversation with Lincoln – I call it “Healy Jones on Freemium.” Our free plan is a free forever plan, with some upgrade triggers baked in – search limits, storage limits, OCR limits. But it’s a pretty good product for free; we are the only company offering free high quality OCR for scanned images coupled with storage. People seem to like the plan… and they also seem to like to upgrade to paid plans. We like that part for sure!

Lincoln is putting on a webinar on kicking butt with your company’s free trials model. I think he’s got some good stuff, so I’d suggest you register!

Yup, it’s me, Healy Jones, talking about the OfficeDrop cloud filing system switch to freemium with Lincoln Murphy of 16Ventures. Lincoln is that well known SaaS pricing guy, and we go over the switch OfficeDrop made from a pure web only service with a 60 day free trial to an app focused business with a freemium pricing model.

The switch in our pricing strategy has been pretty huge for OfficeDrop. It’s driving a lot of new user growth – both free and paid. It’s been only a month and a half since the switch and the change is clearly measurable with our analytics packages. So far, for our SaaS company, freemium seems to be working.

Check out the interview with on why OfficeDrop went Freemium here! Or simply watch the video embedded below.

Healy Jones with Lincoln Murphy on Freemium

Interesting research from Flurry again (they were the ones who put out the info that mobile app usage is topping regular web browsing). This time they have data showing that free or “freemium” app titles are generating more revenue than pure paid apps. From a MediaPost summary of the research:

Flurry shows that over the last six months, revenue from free-to-play game apps has overtaken that from paid apps. Among the top 100 grossing games in the App Store as of June, more than two-thirds (65%) of the revenue generated came from freemium games and 35% from paid games.

That’s nearly opposite the situation from six months ago, when paid game apps accounted for 61% of revenue and free titles, 39%. What’s changed since January? Peter Farago, vice president of marketing at Flurry, pointed out that Apple began counting in-app purchases toward app gross revenues at the end of 2010, reflecting the impact of that sales stream in its ranking of top-grossing titles.

Free apps generating more revenue than pure paid apps

So, this research is focused on games, but OfficeDrop is betting the same will be true for our b2b SaaS app. We switched to a freemium model earlier this week, mainly driven by the feedback we were getting in the app stores. App store people just expect to try stuff for free and don’t like free trials. We can’t get them to read the app description that talks about the free trial period; they just look at stars, download and then leave a nasty review without trying the service. Hopefully this freemium experiment will pay off for us. Initial web signups are promising, but it’s too early to tell!

Really? Does this make any sense? Intuit announced that QuickBooks 2011 will not have a free document management plan due to a change of accounting policies. The email they recently sent to QuickBooks users said:

Free Document Management will be discontinued in QuickBooks 2011

What’s Changing?

Document Management is free in QuickBooks 2010, and it will stay that way. But after May 15, it will no longer be free in QuickBooks 2011.

Why?

A change in our accounting policies requires us to stop offering free services in any version of QuickBooks after 2011. We’re not happy about it because we know Document Management could be an integral part of how you do business.

Waaaa? It’s an accounting software company, you’d think they could figure out a way to not let the accountants drive important business decisions. Does this mean that Intuit will never offer a paid version of Mint because they’ll have to end the free version? Does this mean that no packaged software companies can do a freemium upsell model for attached services? If the latter is true, will a company like Microsoft – that makes a lot of money off of one time installed software – be totally unable to acquire freemium SaaS companies? Will Intuit never be able to acquire a freemium company like Box.net? This seems nutty.

I just don’t get this move by Intuit, unless the real reason that the free plan is being eliminated is because they just aren’t making money off of the free to paid upgrades and this is a way to kill off the free plan with an excuse that is so obtuse customers are unlikely to question it.

What do you think? Are the accountants just running the show at Intuit and forcing business decisions to be made off of accounting rules, or is it likely that the free plan just wasn’t working for Intuit as a business/marketing model?

Here is most of the email that I was able to screen capture:

QuickBooks discontinues free document management

Note, I have no info other than this email about Intuit’s document management policy change. And these opinions and questions are 100% mine, having nothing to do with my employer.

I’ve just had a couple of articles published on other sites. I guess that is my excuse as to why I haven’t been posting very much on Startable recently…

Raising prices without causing a customer meltdown

If you recall, OfficeDrop changed prices last year. The pricing change went very smoothly – unlike some other pricing fiascos we’ve witnessed recently. I discuss the reasons I think our pricing change went smoothly. In particular, I think SaaS companies are challenged when they try to raise prices because of the recurring, generally non-contractually bound, relationships they have with their customers.

Press release tool for small businesses

I love some of the Grader products offered by Hubspot. In particular, when I was first learning to write press releases their free Press Release Grader was very helpful. I explain on DIYMarketers why I like this press release tool and recommend it to other business owners.

There is a ton of chatter about a Justice Department anti-trust investigation into Google. There is no question that Google dominates search. See the following search engine market share chart from Compete:

And everyone knows that Google derives the vast majority of its revenues and pretty much all it’s profits from the search business – something like 90%+ of it’s revenue is from search related advertising.

So, my question is, if the Justice Department does something really aggressive and crazy and decides that Google needs to be broken up, how would they possibly split the business? No one can possibly claim that Android, Google Docs, and other industry leading properties that Google has developed are cash-flow generating independent, fully fledged businesses on their own. Despite the massive user adoption for these products, in their current form they are more of “scorching the earth” defensive products instead of stand-alone companies. If they were carved out of the company then they’d need  pretty deep private equity type backers to get them to a profitable form. Not impossible to imagine this happening (i.e. a PE group wanting to fund them for the chance at massive upside) but it doesn’t feel like the traditional AT&T/Baby Bell breakup.

I guess there is the Microsoft example where various governments forced MSFT to stop forcing computer companies to bundle IE or something like that. But how would you stop Google from giving away Android to mobile handset makers? Force them to start charging for it or something? I just don’t get it.

Anyone have any idea what type of action a government would take to punish Google for their search domination?

Rob Go, seed investor with NextView Ventures (I wrote about NextView last month), has yet another good post, this time on Product Development – Librarians and Poets. He talks about how product management and development needs bot vision and execution/organization, and contrasts several well known startups, internet companies and founder and talks about how they played to their strengths. Good piece, check it out!

Dharmesh Shah recently made it abundantly clear that the developer hiring wars have reached the East Coast in his massive bounty for new developer hires at his company, Hubspot.

I just heard of an interesting NYC program called the Turning Fellowship that aims to bring new developer talent to New York City. A couple of venture firms appear to be spearheading this effort; PE Hub quoted one of them as saying, “Entrepreneurs complain about a lack of talent in New York City.” No kidding! There is a lack of great development talent everywhere!

Anyways, the program sounds like a good idea, as it will provide students with programming skills paid internships at NYC startups. This could provide very positive experiences to students looking to gain some real-life skills (and help them figure out if they want to join startups when they graduate too!)

Anyone know of other programs like this in Boston?

Eric Ries has a good post on MBAs and startups. My favorite paragraph is:

General management is supposed to be orderly, “strategic” and mostly calm. I have seen founders replaced because their style seemed too chaotic, even though what’s really happening is that they are operating at startup speed. Pivots are disorienting, but necessary. Except when a startup is busy “pivoting” all the time, running around in circles. That’s a waste of time. How do you tell the difference? General management doesn’t have a good answer. As a result, founders get removed prematurely or even entirely exiled.

Eric goes on to explain that he sees a disconnect between the entrepreneurship courses at most business schools and the actual, current best practice at startups. I think he is correct – but isn’t there is also a lag between most academic courses? Anyways, the real point here is that Eric is not just complaining, but is also trying to be part of the solution. He will be an EIR at HBS this year, and he goes on to talk about how he hopes to bring the idea of the lean startup to entrepreneurship teaching. Pretty cool.

A CNN piece alerted me to a Pew Research study on the penetration of checkin apps, and claimed that only 4% of people in the US have actually used a checkin app.

I’ve been thinking about checkin apps for a while, mainly because I’m slowly using Foursquare less and less as time goes by. I’m finding it slow (although I think my ancient iPhone is part of the problem), that it doesn’t really fit into my workflow (i.e. my friends and wife think it’s annoying that I always have to pull out my phone whenever I go into any store) and to be totally honest, am not getting enough utility out of it anymore.

I was worried that this study was going to only include landline phones, but they somehow included cell phone users in the study. (see my older piece on landlines vs. cellular congestion). So there could be some interesting data in the piece.

Here is some cool information from the survey:

24% of online adults use Twitter or another service to share updates about themselves or to see updates about others. Ten percent of these status update site users use a location-based service, over twice the rate of the general online population.

twitter penetration

The other chart I found interesting shows a funny barbell in terms of education – less educated and more educated people checking more often (note this is not statistically significant but I’ll pretend that it is.) And middle of the road income people checkin more than higher income people – but again, not stats significant and may be a function of the age – younger people also make less $ so this may be the cause.

% of people who checkin by demo

Anyways, cool research by the Pew people.

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