Monetizing Your App & The Business of Freemium on the Web
One of the cool guys at 37signals once said something like “if you can’t use your free stuff to point customers to the paid stuff, then what you’re doing is pointless.” (this is an obvious paraphrase). The problem with making money with your app is that now everyone expects and feels entitled to getting everything for free. This isn’t as hard if your site, app or blog started off with a paid model, but if you were free from the start and decided years down the road to monetize…well it’s tough to say the least.
I bring this up, not just because Twitter decided to start monetizing and selling ads, but because I’ve been working on a way to monetize codesnipp.it. I’ve listened to a lot of podcasts from app developers, read books by them and have studied several websites that are monetized. What I’ve come to realize, is that several well known apps use the “Freemium” model of business, and this is something we’ve been looking into for codesnipp.it
What is Freemium?
Freemium means the basic service of something is free, but you pay a fee if you want something more. Some of the sites I’ve seen use this model are:
- Nettuts
- Pandora
- Dropbox
- Freshbooks
- Most iphone apps
- WordPress.com
- Flickr
- Vimeo
Freemium is great because it allows everyone to use the service for free, and most people will stay using the free version. However, for those who want something a bit more, whether in terms of ad-free, more space or more features, they pay for it. It seems that this model works really well and also has a pretty good reception by most people who figure they’d be willing to pay for a service if they need more.
Why pay anything? Can’t I have it for free?
Web users don’t want to pay for anything these days, thanks to the popularity of social media sites like Twitter. But this is seriously unrealistic. If a business doesn’t have a way to make money, they aren’t a business. Similarily, even for someone like me who just wants to put out a great app for developers to use, there’s still several things most people don’t think of:
- Who pays for the designer?
- Who pays for development?
- Who pays for hosting, especially if the app kicks off and needs thousands of dollars a month in hosting fees?
The ungratefuls
Unfortunately, there are people out there who don’t care if you have to shell out tons of money out of your pocket for them. They expect it. Yesterday, Paul Boag, from Boagworld, posted an insanely rude email he got from a “listener” who did nothing but criticize the audio quality of ONE post, in which Paul warned us from the beginning that it wasn’t the best. Here’s an excerpt from the guy’s email:
I cant beleive after 206 episodes you still havent sorted the audio out.
I will be forced to seek a new podcast if you cant fix these issues.
Why don t you just pay someone to adjust the levels, an audio engineering student maybe.
How much ruder can you get? Here Paul and the other Boagworld contributors take time out of their day to bring us a free product. What people don’t realize is that there’s always more work into a product than what you see. I bet it takes some serious time to edit those podcasts and some serious money to buy the equipment they use. Yet here’s a great example of someone who expects to have a perfect product for the perfect price of free.
Not everyone will agree
Not everyone will agree with you charging a price for your product, but then again they’re not the ones building it. You may lose some customers or users, but you’ll gain a lot more. Charging for your app allows you to make the app better, as you’re able to justify the time and costs associated with creating and maintaining more feature, better hosting, and great designers and coders.
What about ads?
I’ve also decided to add 1 ad spot on the sidebar of codesnipp.it, to allow for one 125×125 ad that will randomly rotate on reload. Originally, this was all I was going to do to monetize codesnipp.it, but I quickly realized, like with my own blog, the ads wouldn’t be enough to support the weight of the site.
I want codesnipp.it to be a free community project, but I honestly don’t have the money to support hosting, domain and dev costs, so I need enough to pay for that. I also didn’t want the ads to be annoying like Facebook, Google Ads or probably what Twitter will look like as well, so one ad on the sidebar is all it will have.
What are your thoughts on “freemium” sites?
photo by David Masters
About the author
Amber Weinberg specializes in clean and semantic XHTML, CSS and WordPress development. She has over 10 years of coding experience and is pretty cool to work with. Amber is available for freelance work, so why not hire her for your next project?
It’s all about creativity, going outside of the box and finding companies that can use all those eyeballs to sell them something. This is the same talk the radio folks were having back in the day (not that I was around, there are books!) about monetizing their audiences. Finding sponsors or some kind of relevant product/service that will add value to the people who see the value in your free service.
If you can’t find something using your creative imagination, then you’re doing something wrong. Keep in mind that the idea might not be obvious at first, but there is a match for every service. Regardless of the niche, there will always be a company who can use the eyeballs!
Awesome blog, and excellent article here.
It’s true that the freemium model is been out of control for quite a while now. Thanks to the 37Signals crew, I think there has been a turnaround over the past year, with more startups choosing to go premium over freemium. You see it with WordPress themes, now with plugins, and many GTD apps (like Things).
It’s still very tough to monetize a content-driven community site though. My suggestion would be to limit the time and resources you put into it up front. Launch an imperfect product, then tweak/improve as you go along and gain momentum.
I always prefer freemium over premium, because like most other people, I prefer to try something out first and decide if I’m going to use it enough to like it. If they don’t have a freemium model, they should at least over a 14 or 30 day full trial of the product.
Free things are awesome, but yeah there are bills to be paid so you have to make money somehow. Best of luck monetizing your application. One day I’ll be going through the same process.
It’s my opinion that the “Freemium” model is the best way to make money on the web – I’m far more likely to upgrade to a paid version of a product that I use a lot (hello, flickr) than I am to shell out cash for something that I don’t have the option to test out first (something like photocart is a good example of this – Everyone says its good, but me and my paranoia won’t pay for it until I’ve had a chance to play around and make sure it’s what I want).
Codesnipp.it sounds like a fantastic resource, and for something that you want to be a community-based thing, anything like adds or payment that turn away the more abrasive “OMFG I CANT BELIEVE YOU’RE TRYING TO MAKE MONEY OFF ME” element is a good thing in my opinion…
I have to admit that I’m always out there looking for a free version of something. And yes, you can usually find one but I also realize the fact that for a great service, you need to pay for it. I think the freemium model is great because for someone like me, I can use it for free and then realize that I love it and need the additional features, so I’ll pay for it.
I’ve worked with a lot of clients that have this same struggle so good luck figuring it out. I also don’t think that having a few ads on your site is anything bad.
Exactly, and what I like about freemium, is that you don’t ever have to pay for the service if you don’t want to – just if you want to use it more than everyone else.
It’s all about leverage. What do you have that the customers want? If they can easily get your service somewhere else for free, good luck charging for it.
But if you have something the customers want, and they can use it for a free-trial or with a limited version, then you have something you can charge for, because people want it.
I really like web services that offer a limited version of their product I can try out, then upgrade if/when I need to in order to get more options. I do this with flickr, dropbox, wufoo, and a few others.
Once I know I need or can use the service, paying $10/month isn’t that big a deal, because it’s already proven itself to work.
What about offering advanced features for your codesnippit users? Maybe a backend where people can save their code snips.
Well you technically get storage with it anyways….but here’s what I figured:
dribbble only allows 24 uploads a month and that’s it. No upgrade nothing. Dropbox, Flickr, Vimeo, etc allow free use of a certain number of storage, than you pay to upgrade.
codesnipp.it will be like that. Everyone can post up to 20 snippits a month, and that will most likely be enough for 90-95% of users, even hard core programmers. If you want to post more, we’ll offer 2 plans, one for $10 for 50 snippits a month and another for $15 for unlimited snippits a month.
How does that sound? I even built a sweet upgrade page with some cool ninja nerds all over it…totally cool advertising
You had me at, “some cool ninja nerds” – I’m in.
What about one off purchases $5 for 25 snippits added to your quota?
I actually ended up allowing unlimited snippits and are trying to provide extra features for the premium users.
At the moment codesnippit is great for sharing code and the views on different ways of doing things, how about a premium feature that gives premium users a private “notebook” that they can add code that they would regularly use to it. They can “clip” code they find and also add snippits of their own to it, and use as a reference when coding.
At the moment i just use coda’s built in snippets, and it works fine but people also use multiple computers to code. It would be more of a preference to use something in the cloud to copy paste from.
I dont think i have seen anything else like this online, and even if there was, having it integrated into codesnippit would encourage people to participate more!
Hey Ash, there’s actually a private snippits feature for premium members on Codesnippit
Sadly, what you highlighted is true.
This is why if I were to release some app, at the beginning I wouldn’t even want to earn something. I would be content with just breaking even: having money for hosting and making it up for all the time and effort I’d have to put into developing.
Then, I would start to thinking about monetizing it for real.
P.S. This is not any suggestion or allusion. This is what I think about the topic. Unfortunately majority of people would almost demand having everything for free. They don’t even understand what it takes to make an app, build it, release it and develop it constantly after that. That’s why I would be more than happy to just break even at the beginning.
I’ve always been a fan of freemium and, to a much lesser extent, ads. I know a few people, less than five actually, who make well into the four figures every month just with ads resting atop their traffic-heavy sites. The model is as simple as creating something with novelty, replacing it with a new gimmick when it dies, or something simple with lasting power. Put one or two ads, annoying as they may be, and money rolls in as long as the traffic is good. Some of those sites don’t even need maintenance. According to cubestat, a site as simple as downforeveryoneorjustme.com could potentially pull in several grand a month based on estimated traffic. The little girl who started whateverlife.com has made millions from the loads of annoying ads all over her myspace-profile site.
Amber, you’re absolutely right. There’s just no way to run a project like codesnipp.it without asking for something, whether it’s a subscription-based “premium plan”, or interrupting your users with advertising.
Besides, you have to contemplate whether you really even want to associate yourself with those folks who are just in it to take rather than give. It’s just not worth our time.
The Freemium model is by far the best way to present products on the web today. One of my most recent examples of this was when i migrated my GTD system to Evernote. Sure it is free, and it does a great deal of things for free, but it manages to leave out “just enough” features to make you pay for the premium version. I purchased this premium version for these small, but significant benefits.
I think the key to the freemium model, is offering a great free product to allow a massive user base to accumulate, and then finding those “just enough” features that will convert your already happy users, who just want that one last feature to complete the product!
Brilliant post and I agree with your thoughts Amber.
Here’s a question to everyone who has read this post and to you Amber.
What if there is somebody out there who will invest time, money, and resources of their own into designing, developing, and producing a better Website, service, or product / app than yours – And they don’t charge for it, or they do, but they offer better terms than what yours currently offers?
What do you do with yours then? Do you throw it out and give up to the better product or do you develop the product to be even better than the new product that’s better than yours?
I find it an interesting topic to think about.
That’s just business!
That is like saying that all people wanting a WordPress site developed should go to Amber because she offers the best service… People have different views, and if someone steals your product outright and tries to sell it off as their own, at a lower price or deal, then hopefully people will see that.
But the person who coined the idea in the first place is likely to out smart the competition because they are more experienced in the roots of the product.
Business will always be a fight for a better product or service.
I agree with Ash, it’s just business. There are a lot of “free” services and apps out there, yet the ones that cost money are still popular, usually because they’re able to spend more money in development since they’re not free.