Emergence Capital Partners venture partner Matt Holleran kicked off Freemium Summit East in New York Monday morning by comparing the SaaS (software as a service) market of the early 2000s with the freemium market of this decade in a segment titled, “Business Freemium — Another Decade, Another Business App Revolution.”
Holleran pointed to the client-server marketplace of the 1990s, mentioning SPSS, which was eventually acquired by IBM, as a leader; the SaaS market of the 2000s, citing Vovici; and the current environment, mentioning SurveyMonkey and calling it “the original business freemium company, starting back in 1999.”
He also strongly recommended reading The Innovator’s Dilemma, by Clayton Christensen, for insight into the disruptive business model.
Holleran described disruptive innovation as keeping apps simpler and easier to use and access, even if that means they may be less profitable, and targeting new or hard-to-serve markets with a new business model, a new financial model, and new leaders.
He mentioned targeting companies with 10 employees or fewer, pointing out that it does not make sense to serve that model with salespeople and saying, “This is where the business freemium companies are doing very, very well today and are beginning to move upmarket.”
When comparing SaaS and freemium, he mentioned Google Apps as the marketing model for SaaS, while stressing that freemium relies on virality. In terms of the trial experience, Holleran said SaaS relies on a 30-day time-limited free trial, “still a salesperson-controlled experience,” versus the free forever model of freemium. Sales for SaaS are controlled and usually done on an annual-contract basis with invoices, while freemium services allow for easy auto-conversion. When it comes to churn and satisfaction, in SaaS, “if someone leaves, they’re gone,” while for freemium, “I’m on paid for three months, I come off to free.” And “you need a sales rep to interpret pricing points” for SaaS, while freemium is based on “knowing your clients and their value points to determine the trigger points to conversion.”
Holleran saw the following growth opportunities for freemium: virality, engagement, conversion, customer satisfaction, the ability to use data, international, new editions (groups), marketing and sales, marketplaces, and mobile.
His concluding advice:
Getting this process to run can take time. The risk is not that some SaaS leader comes into your market — the risk is that Phil or Sally sitting two rows from you becomes the leader of your market. Lead the revolution: Evangelize the new model, accelerate to lead your market. Don’t apply principles of SaaS or force-fit models that have worked before.