As someone who helps companies price their products, I’ve always been wary when I hear things like “we’re going to give our product away and worry about monetization later.”
Monetization is, of course, critical to the long-term viability of any startup. Founders who’ve struggled to fundraise are 3x more likely than their peers to say they monetized too late and 2x more likely to say they picked the wrong business model.
Yet 2020 proved to be the year when a free offering became an essential survival strategy.
SaaS companies quickly adapted to the COVID-19 pandemic by making their products available for free or at a steep discount. But then they realized that doing so had a real and positive impact for their business.
It wasn't altruism from companies with strong balance sheets. Pluralsight said their #FreeApril campaign was "by far our most successful campaign we've ever had," bringing in 1M+ new sign-ups. Atlassian said that free is building “a big base of customers and potential customers underneath our business.” It’s making it easier for existing Atlassian customers to try a 2nd (or 3rd) product - no need to ask an admin for approval. Atlassian is able to look at active usage rates to gain confidence that paid conversion will happen in time.
It wasn't a short-term promotion limited to the Spring. GoDaddy has slowly been expanding their freemium test and plan to open it to 100% of traffic soon. PagerDuty launched freemium in September and JFrog didn't do it until October.
It wasn't just for traditional PLG or SMB companies. Appian Corporation, which sells new deals for $100k+, introduced a free trial. They realized that more and more of a purchase process happens before a prospect ever talks to sales. The product becomes an important marketing and sales tool. Nutanix, formerly known for their hardware, launched a Test Drive to “build your clouds your way in a few clicks." They're going down the route of "zero touch self-service for prospective customers." The result: "conversion ratios have been much higher."
It wasn't just about selling to individuals. While most free offerings are tailored to the end user, the goal is to go from user > team > company as fast as possible. JFrog said they've seen "thousands of registrations choosing JFrog, starting as users and then entering the sales funnel."
Here’s why I believe that free offerings are here to stay:
End users—whether it be a developer, individual marketer, sales rep, or someone at the edge of an organization—are now the most important constituents in software buying. Though this shift has been happening over time, we saw it accelerate last year as COVID-19 brought about rapid digital transformation. End users want to jump into the product; no credit card or budget approval required.
Folks are doing more and more research online before they want to talk to a sales rep. Gartner says that only 17% of the B2B buying journey is spent actually talking to suppliers. Your product is a key part of the buyer journey and should be treated as a marketing channel. (Product invites, virality, and word of mouth further amplify the importance of thinking about your product with go-to-market intent.)
Loss aversion - the tendency to prefer avoiding losses over acquiring equivalent gains - is a real thing. Imagine you’ve taken the time to discover a new SaaS product, set up your account, customize it for your workflow, and are starting to see value in it with your team. You’d hate for that product to all of a sudden be taken away from you. Or to be told that you need to go evaluate 3-4 other products before you can make a purchase. You’ve essentially already made a purchase decision without ever feeling like you were in an active buying cycle.
We have much better visibility into how users engage with products than we did before. And that allows us to notice interesting patterns like the fact that folks who reach a state of “activation” are 5x or even 10x more likely to convert from free to paid than other free users. There’s now a science around how to measure product readiness for a free offering and how to ensure that you can convert free users into paying customers at scale.
We’ve learned that free doesn’t necessarily de-value a product or limit your ability to sell a large Enterprise deal. The reality is that a free offering is an on-ramp into your product; not the full product itself. It opens up the door for a broader conversation about how your product can address more complicated use cases and unlock ROI for the organization. SaaS companies with a usage-based revenue model, like Twilio or Snowflake, exemplify this trend and they can seamlessly scale with customers as they grow their adoption over time. (Side note: Twilio now has 7 customers paying >$10M per year and 142 paying >$1M per year.)
Now, if you’re an enterprise-focused SaaS company, you might not be able to jump straight to a fully free self-service product. Here are three ways to dip your toe into it.
Offer a sales-assisted free offering supported by a Product Specialist. This is usually a junior resource who helps the customer with onboarding and troubleshooting, but can also bring in a sales rep for commercial conversations when it’s appropriate.
Spin out a side-car product that becomes lead gen for the paid product. These are usually pieces of the core platform that are easier to adopt and have viral potential. Think the HubSpot Website Grader or the Zenefits Health Insurance Marketplace.
Turn the product into a sandbox environment so it becomes part of the buyer journey. You might look to Airship and their 1st Flight demo app for inspiration. It helps educate new users about the power of the product and increases the desirability of setting it up in a production environment.
TL;DR: I’m convinced that the future is free. And that’s a good thing. Just don’t give away your entire product 😉
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