Lecture 14: SaaS + Freemium Flashcards
What is Open Source or Freeware?
Open Source and Freeware is a pricing model where the software service can be used for free by customers.
- Using Open Source derive revenue from there software products offering installation, sales leads, maintenance, consulting services, lead generation for a fee.
- Also through advertising.
What is the Freemium Model?
What are the Pros and Cons of the Freemium model?
The Freemium model refers to a business model in which the software/product is offered for free with the basic features, and the more advanced features come with a subscription, fee or some kind of paid way of accessing the premium software features.
- Start off free, then pay to play
Pros:
- SaaS businesses has recurring revenue over the long term as customers pay monthly to keep using software
- users of the free versions will allow you to use their data and analyze to better the product
- Customers feel reaffirmed about paying for the premium service because of the extra value they get from the features
- Free customers can give out referrals that turn into paying customers
Cons:
- Freemium may anchor product to low quality
- Free may give product a negative appearance
- If free is too good, conversion rate will be low
- May lead to low advertising revenue, low conversion rates
What is SaaP (Software as a Product)?
What are the Pros and Cons of a SaaP pricing model?
SaaP refers to licensed software pricing models.
- This is when a company sells a license to the user for a fee that allows that to use the software for their personal uses.
Pros:
- SaaS may generate more contribution per sale over time
- Reduces the risk of customer churn
- Allows customers to use it for a longer time
Cons:
- SaaP pricing model maximizes revenue in the short term
- Increases chances of Customer churn
- Might attract wrong types of customers
What are things to look at, to better the Freemium service?
(Segmented Pricing, Features, Capacity, Time)
Capacity:
- Limited to certain aspects such as people, storage, files etc. (Dropbox is free up to certain space limit)
Segmented Pricing:
- When certain segments of customers use the product for free or a lower price than the standard.
(Amazon free shipping is prioritized for Prime customers, Amazon Student is for reduced rates)
Features:
- When you have to pay more for certain features. (LinkedIn, Chegg, Snapchat Premium)
Time:
- When certain premium features are limited to certain amount of time (SalesForce offers all premium features for 30 days free)
What are Freemium’s other sources of revenue than monthly subscriptions, fees?
Other sources of revenue for Freemiums are:
- Advertising:
Product placement, video ads, branded content - Lead generation and Offers: referrals and such
Premium Features:
- Virtual goods, additional controls
What to when Conversion rate is high?
When Conversion rate is low?
When conversion rate is high, you can raise the price on the premium features to increase revenue, or introduce an even higher tier.
When the conversion rate is low, you can try to introduce a middle tier for a lower price than the premium tier to allow for a steppingstone towards the premium model for lower tier customers.
