Within the vast world of online services, free rules the roost. Most are available at no cost, so consumers have enjoyed a bountiful and growing buffet without having to shell out a dime.
While it has been great for consumers, the challenge for many online companies is that the "free" business model is dependent on getting enough users to attract enough advertising to create a viable company. Getting this business model to work can be a challenge.
An increasing number of online service providers have come to the conclusion that giving away free services may not be the best approach, particularly if a critical mass of users deem them valuable.
This economic reality has put more emphasis on the "freemium" model, in which a company offers a basic service at no cost but for a monthly fee also provides premium services with more features. It is a win-win model because it provides consumers with the opportunity to try a product, while companies are able to generate revenue by offering a paid service to customers looking for more features.
If a business launches with a freemium model, it sets immediate expectations among consumers in terms of what is free and what costs a fee.
But what happens if a company offering free services decides it needs to offer premium services to create a business that can generate enough revenue to survive and thrive? What are the steps that need to be taken to create this model without alienating existing customers?
This was the challenge faced by Vancouver-based HootSuite, which launched a free and popular service for using Twitter. As HootSuite began to attract a lot of users and gain a reputation as one of the best tools to use Twitter and other social-media services, the company started to seriously explore the idea of transitioning to a freemium model.
The challenge was pulling it off.
Ryan Holmes, HootSuite's CEO, said the decision to look at premium services had a lot to do with the company's success. In attracting one million users, HootSuite had to create an infrastructure to support all the traffic. And it had launched a popular service to shorten website addresses, which added more stress to the company's backend.
Mr. Holmes says planning to launch premium services took several months. "We definitely looked at it very carefully because we wanted to be sensitive to the needs of our users, and finding plans for them. We didn't want to alienate anyone."
HootSuite's target audience for premium services was the 5 per cent of "power users" that had multiple accounts, multiple users and accessed a variety of social networks.
Despite the planning, HootSuite's initial move into premium services left a lot to be desired. In particular, the idea of offering pre-configured packages did not get much traction. This forced the company to go back to the drawing board, which led to the decision to offer a la carte services in which customers could select the features that met their specific needs.
A key part of the process was selling services to power users who were asked to pay for things they had been getting for free. Mr. Holmes says the company was very clear and transparent about its new packages, and it gave clients enough time to determine what services they needed.
In the end, he says there was little pushback. "People realized we are a small company, and they want to support the product," he explains. "We didn't have anyone upset about it. A lot of people said it was about time. Ultimately, it will let us provide the product to power users because we can scale."
Special to The Globe and Mail
Mark Evans is a principal with ME Consulting , a content and social media strategic and tactical consultancy that creates and delivers 'stories' for companies looking to capture the attention of customers, bloggers, the media, business partners, employees and investors. Mark has worked with three start-ups - Blanketware, b5Media and PlanetEye - so he understands how they operate and what they need to do to be successful. He was a technology reporter for more than a decade with The Globe and Mail, Bloomberg News and the Financial Post. Mark is also one of the co-organizers of the mesh, meshUniversity and meshmarketing conferences.