Freemium Lies

Jason Fried, co-founder of 37signals, on a fantastic new podcast called The New Disruptors:

“When we first started we were one of the first freemium companies. When we first started we had a free trial. You could use Basecamp for free on one project. If you wanted more than one project, you had to pay. But when we launched the brand new Basecamp which we re-did from scratch, we decided we were no longer going to give away anything for free, other than a trial.”

Freemium, although the term is maybe a decade old, is not a new idea. It means, simply, that a certain amount is for free and more stuff is for pay. In fact the term is exactly that, the melding of free and premium.

The problem with Jason Fried’s statement above is that Basecamp is still freemium. His “free” portion is just time now, rather than projects. And if you want more time then pay for it.

Freemium is a decades old approach, in software or outside of it. Free samples at the grocery store. Free car wash with a fill-up. Get one free if you buy one. Even free trials, a staple of software for decades, is free for a limited time. These are all models that have a sense of freemium. Get something for free, get something for pay.

More from Jason:

“A lot of these companies that give away everything for free and later on they are going to pull the revenue lever and figure out how to make money off people. It’s very difficult to do that when people are used to getting stuff for free, first of all. It also sends a message that when your stuff is free, it’s not really worth that much. You don’t give things that are valuable away for free. No one does. Last, a lot of people use these free products and then the company goes away because it’s not sustainable. What a bummer.”

We all give away our time and I can’t think of a more valuable thing to give away. A product can be valuable but pales in comparison to this. Free is marketing, that’s all, and there are different ways of leveraging free marketing. Some companies have done very well with this “free to use forever with restrictions” model. Google launched Docs this way. Flickr hosts billions of photos this way. Evernote has over $100 million in revenue because of it. Now, 37signals has backed off freemium and so has Google Docs. That’s fine. That may be a smart business decision and don’t deny Jason the opportunity to do that with 37signals. But I find it disconcerting that Jason wants to forget that this model was critical to his success. Freemium is part of why 37signals is where it is today.

Oh, Jason, and if you are only giving a product away for free? That’s not called “freemium.” That’s called “free.” And I wouldn’t trust that to be around, either.