Monthly Archives: June 2013

Users never pay you for your app. Yet you still make money. How?

If you’ve hung around startup-land long enough, you’ve heard the term “freemium”, which describes a product pricing model where you offer a feature-limited version of your product that has no time limit. Generally, free plans are offered in the hopes that some percentage of users will convert to paid users because either they’ll get far into using the product and decide that they need some feature that’s only available in the paid plans, or they’ll hit some sort of usage limit that you set, in which case they upgrade to paid for more of something that you offer. Conversions generally aren’t that great (as users will go out of their way to not give you money if you’re giving them something for free, such as religiously managing the contents of their 2GB free on Dropbox, or deleting less important photos from a photo sharing service that only lets you see your last 200 photos). However, some small percentage of those users do convert, and you also get good mindshare out of it if you’re big enough, because free users will be aware of your product and may recommend a paid plan to others… therefore your marketing reach is greater. Also, you can officially deputize your free users and make them affiliates, which gives them incentive to promote your product to people who they know, in exchange for a cut of your profits from the sales that they bring in.

If you aren’t running a SAAS app, but rather creating a downloadable app that people can install on their own servers/hosting, a different way to make money emerges. I’ve long been aware of companies out there who offer a completely free, downloadable software product that has paid support (so if you never need support, you’ll never pay, but if you do, you’ll pay a good bit).

Until recently, I thought that these were pretty much the only ways to run a software business that offered a product that’s free (for a limited time, or forever) and still make money at the end of the day. I was wrong.

I came across another model the other day, where a self-hosted app that appeals to a wide market is sold (let’s say shopping cart software, because that can potentially be used by anyone who wants to sell products online). The product is offered completely free to anyone who wants to download it. That makes it spread far and wide quickly, if the app is stable and has a good reputation. You build a community around that app, and add the ability to use third-party modules to add features to your app. Then, once your community/app users has grown to a sizable amount, you charge third parties a lot of money (I’ve seen $18,000-$30,000 so far) for the ability to integrate with your app and/or have their modules preinstalled when a user downloads your app. You’re basically using a free app to build a valuable platform that other companies will pay a lot of money to have access to. You don’t have to sell too many things at $30,000 to make real money, and it’s a way to make money that hides in plain sight. Next time you see this particular model in action, you’ll know exactly what’s going on.

Kill your credit card-less free trial.

I’ve run multiple web apps for years now, and over the years they’ve had different pricing models, from completely free to paid-only, with free trial periods of differing lengths.

As web app owners, we all know that one of the best things to do is to just get the first version of your product out of the door so that you can see how the market responds, instead of overanalyzing decisions before they can be tested in real-world conditions and with real customers. But of course, once you get your product out into the market, you should always be keeping an eye on things to see what you can be doing better, and improving on things that are working.

One of the things that I’ve messed up on repeatedly (but am constantly working on) is pricing. When Chris and I launched Are My Sites Up, we had totally free accounts that could check 60 sites at once. We didn’t even do the math about how much it would cost us, or how many sites we could reasonably check from each server… the numbers just sounded right. We immediately had server-crushing “success”, because people signed up like crazy for it, but quickly we realized that we could only afford to offer monitoring of 5 sites for free, and dialed the plans back.

With apps I launched after that, such as Are My Sites Up White Label and the original version of Dispatch, I used the lessons that I learned from launching AMSU to inform my pricing choices. In the case of both, there was no free version at all, only a free trial. My mistake there was not requiring credit cards on the trials, though, so many people would sign up and never convert after the trial period. Some would even sign up, promptly forget that they signed up, then never use the app again.

As a web app developer, it’s nice to see that a bunch of people are signing up for your trials… but it just makes you feel worse later when only 1% of them actually stick around and pay you for your product. What really matters at the end of the day is that you have a product that is helping people to do something more effectively, and that it’s making enough money for you to keep it going and support the users who need your product most. Also, as an independent developer, it’s also very important for me to minimize time spent dealing with users who will never give me money for my product.
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I was always afraid to require a credit card on sign-up because I feared that it might cause people to close the browser tab and not bother signing up at all. I’m not afraid of that anymore because I know that now when I see a new signup, it’s someone who is actually actively interested in what I have to sell. Thinking about my own behavior when I see a signup form that requires a credit card: If I am truly interested in the service, but not ready to fully commit to testing it out, I’ll just bookmark it and come back when I’m serious and have time to use it, because I know that there’s a time limit before I need to make a decision, or my card will get charged.

Also, I’d much rather have a situation where I have 50 people who sign up for a trial, and 30-40 of them stick around than one where 300 people who aren’t serious about using the product sign up for the trial, cause a drain on support resources that could be used to help paying customers, and then have only a few of them even stick around after that.

Instead of letting them filter themselves out after trying your product and deciding that it isn’t right for them, let people self-select themselves out of even signing up for your trial by cutting out trials that don’t require a credit card. You won’t regret it. Recent apps that I’ve launched, like Stunning and the latest version of Dispatch have had trials with credit card info required since Day 1, and I’m starting to go back through my older apps and do the same thing. You should too. Learn from my mistakes!