Free. Freemium. Free trial. Free education. Free content. More and more, I hear the word “free” across the managed services market. I’m not pressing the panic button — good managed service providers are still charging a premium for their offerings. But I do wonder how the “free” story is going to play out. Here are some thoughts.
The Freemium concept isn’t new. Fred Wilson, a venture capitalist, described Freemium opportunities in this March 2006 quote (credit: Wikipedia):
“Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base.”
When Wired Editor Chris Anderson published the book “Free” in 2009, the term Freemium went mainstream — and software CEOs took notice. During the 2009 N-able Partner Summit, CEO Gavin Garbutt announced a freemium endpoint security strategy. And during ConnectWise Partner Summit 2009, Anderson was on stage talking about freemium strategies and his other best-selling concept: The Long Tail.
I blogged a bit about the freemium trend in October 2009. Then, the topic popped up again Jan. 4, 2010, on Stuart Selbst’s Facebook page, where he wrote:
“Want to generate more revenue in your IT business? Give managed services away for free.”
I don’t agree with the statement but Selbst — a business coach who assists MSPs — stirred some great discussion. So I took the bait and decided to blog a bit more on the topic.
Free vs. Freemium
My key thesis: There’s a huge difference between “free” and “freemium”
- Free means you’re desperate for business and you’ll do anything to get your foot in the door.
- Freemium means you have a clear strategy — a free carrot — that will engage numerous customers and convince a few of them to sign up for additional lucrative services. Plus, a freemium effort demands a natural bridge from the free offer to the paid model.
Chris Anderson says there are five freemium business models (credit: Wikipedia):
- Feature limited
- Time Limited
- Capacity limited
- Seat limited
- Customer Class Limited
Here are some examples of each (off the top of my head…):
- Feature Limited: The old Wordpad and Notepad model, which inspired users to ultimately purchase Microsoft Word. Updated 4:00 p.m. eastern, Jan. 6: Check out Office 2010 Starter
- Time Limited: Free software or service trials that time-out after 30, 60 or 90 days
- Capacity Limited: Email services that offer a free amount of storage, then you have to “pay” for more storage once you exceed a certain threshold
- Seat Limited: N-able’s endpoint security offer gives MSPs one free N-central Essential license for each N-central Professional license they have in place
- Customer Class Limited: Under certain license models, enterprise customers that purchase Microsoft Office 2010 will receive the free ability to host Microsoft Office Web on their own premise
When Free Fails
Still, Free and Freemium doen’t always succeed. We’ve all seen:
- Free, advertiser-driven WiFi networks that (A) lacked enough advertising dollars for long-term success or (B) delivered such poor bandwidth that users moved to a rival paid system
- Freemium strategies that felt like bait-and-switch offers. Sign up right now — the clock is ticking — to get one month of free service but get locked into a two-year service contract
Will Free Hurt Margins?
Yes, some MSP offerings will suffer from commodity pricing over time. Proactive remote PC management, for instance, is an old story.
But I think managed services are like a broadband pipe. Even as one service becomes a commodity, you can push a new, higher-margin service over the pipe.
Roughly two years ago, some industry watchers were talking about a “race to the bottom” — which involved low-cost MSPs driving down prices and margins, and potentially hurting the overall market. Fast forward to the present and I hear victory stories from folks like Inhouse IT, which is winning more business involving customers who were disgruntled with their previous “lower cost” MSPs.
Simply put: Customers are starting to understand that you get what you pay for. Careful with free. Focus on freemium.
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Joe,
The reason for this post was that I was reading Chris Anderson’s book, Free, The Future of a Radical Price. So I thought it would be interesting to see would bite on the subject. Obviously, this is an issue that is a lot of people’s mind these days.
For the record, as a former MSP, I NEVER would give anything away for free and as a business coach, I DON’T recommend to my clients that they do either. But, in my opinion, there is going to be a time that Managed Services (monitoring and patching only) will have to be free.
Joe, I appreciate you blogging about this topic and I am sure that there will be many more conversation around “Freemium” in 2010. I know that I will be holding a roundtable discussing on this subject with partners in the near future.
Happy New Year,
Stu
Stu: Happy Belated 2010. Thanks for shedding more light on where you think the industry is going. Anderson’s book is worth the read. I don’t do it justice in a blog entry.
-jp
Very interesting and very exciting market opportunity for MSPs Joe,
For me, Freemium in Managed Services is about the MSPs leading with any critical Managed solution that enables them to go after identified prospects and demonstrate real value in order to win new business. This is all about getting the thin edge of the wedge in the door and opening up more opportunities. Lead with value. Let’s not forget that 80% of the channel only really managed 20% of their customers today. My advice to MSPs that want to grow their business, is to go and make the investment and develop a critical Managed Freemium value proposition that is a must have for prospects, make sure you collect all the IT data and be able to demonstrate the total value you can provide the SMB with reporting. If you are not in a position to make the upfront investment in software or the sales and marketing programs, then please give me a call and we will see what we can do to help you out as we continue to expand our $75M investment in our partners success.
Hey Joe, time for me to eat some crow here. My Windows 7 install on my MacBook has started to cause issues and freezing my VM. So I got thinking “what do I need Windows for?”. I am using MacMail for my email, Firefox in the MacOS for browsing and really the only thing I was using Windows for was ConnectWise and MS Office. So……
I started testing out OpenOffice. Same mindset, free! I know we caused or I caused some stir a while ago around my thoughts on OpenOffice vs. Microsoft Office. However, I got thinking and so far it is working exceptionally well for what I use a word processor, spreadsheet and presentation software for. Why would I pay $700 for the Mac Office or even $500 or more for Office. (Microsoft just released the Office 2010 pricing today).
OpenOffice does everything I need and I get to keep the dollars in my pocket. Don’t laugh, this is how our clients are thinking now. They have young adults working for them who are used to the free mindset and guess what…they are having a hard time seeing the value of computer service period.
This is starting to get my creative juices flowing and trying to figure out how does the MSP service going forward? How do we survive the Free movement? It is time to adapt not just think about it.
Stuart Crawford
Calgary, AB
http://www.stuartcrawford.com
I think the key is, as Gavin said, to offer a “wedge” to get in the door. Anything beyond that and you are only lowering the perceived value of your services.
We have a firm in Boston doing projects for free just to get a reference account in a new market. I understand the desire to get a quick win, but that’s a whole lot of “free”. More than a “wedge” in my mind.
Mike Cooch
http://www.everonit.com
http://www.smbitpros.com
Gavin@3: Please keep us posted as the endpoint security strategy ramps up.
Stuart@4: Another thing to consider about OpenOffice… Sun (StarOffice) has been a “champion” of sorts behind OpenOffice. But we all know Sun is struggling. I wonder if Oracle will give OpenOffice a further boost if/when the Oracle-Sun deal is completed. It’s rather shocking to me that OpenOffice doesn’t come free with more Windows PCs.
Mike@5: That free firm in Boston is going to have a difficult time raising prices from zero…
-jp
A little late to the discussion, but my initial feeling to the “free movement” is a big fat no! Beyond devaluing our services, a free offering redefines our services. A free offering of monitoring and patches puts that at the center of your offering, and leaves the strategic elements, the package selection, the CTO services, etc. as “extras” – like adding a scoop of ice cream to your pie. Sure it makes it better, but you can definitely live without it. Those are not the clients I want – whether or not they decide to purchase those extras. I want clients who of course understand the necessity of monitoring and patching, but so much moreso understand the value of a strategic partner.
Becca Everding
Marketing Director
http://www.motherG.com
Rebecca: I rather enjoy healthy debate. Thanks for voicing your strong opinion. Please let us know if you ever have a change of heart and keep the opinions coming.
-jp
We have used “free” when it comes to our clients who are early adopters. For example, they are willing to try out some of our more complex, newer services for a given period of time and then commit to an agreement after proven benchmarks were met. This is akin to a 30-day trial that a lot of software companies offer. This has proven to be successful for us and our customers. We receive the product education and the ability to hone our services with some very solid customer feedback and the customer feels that they received a proven, valuable service. This has helped increase revenue dramatically with existing clients.
Other than that, sometimes we sweeten the pot for our larger, long term clients.
I wouldn’t go into a new deal offering FREE.
-Jeff
EMR Group, Inc.