How do companies like Dropbox, Spotify, Slack, and HubSpot leverage freemium strategies to grow? What are the different approaches to freemium, and when should (or shouldn’t) they be used? In this episode, I sit down with Dexter Zhuang (Growth & Monetization Manager at Dropbox) to take a deep dive on freemium growth. From acquiring free users, to converting them to paid customers, to reinvesting that money into acquiring more free users, we cover it all and give you a glimpse at examples where it’s all gone right, and a few where it’s gone terribly wrong. A few take-aways: - Freemium, by definition, is a pricing strategy in which you give away a part of your product (with restrictions) for free while offering your premium product (or service) for a cost. While the free product or service is usually limited in scope (i.e. you are restricted by the number of features or users), the time duration the user can utilize it is unlimited. This in contrast to a free trial, in which the user is able to trial the full product or service at no cost for a limited time. - Sometimes freemium makes sense as a strategy, other times it doesn't. You've got to have a clear understanding for when it should be used. It brings a low barrier to conversion, allows you to reach a larger market with more organic amplification, and puts a focus on long term nurturing and optimization. But the cost to build and maintain a valuable free product is high, it's hard to keep a balance between paying and non-paying customers, and you need to keep cost per user low (generally not providing support). For this reason, Dexter recommends freemium as a strategy for companies that already have cash flow, rather than for companies that are just starting out. - There are a ton of different freemium models, and they often get confused. Here is a quick breakdown: 1.) Traditional Freemium: free-forever feature-limited-but-usable version of a premium product (Ex: Dropbox, LogMeIn, Mailchimp). 2.) Company Through Individual: Free for individual users. Paid at organization level. The first individual adopters in the company are used to grow the product within the company and then get the organization to pay (Ex: Yammer, AWS, HubSpot Sales). 3.) Add-ons: Completely free and functional core product with available add-ons or upgrades for purchase. But the main product works fine for the majority of the market (Ex: Skype, AVG). 4.) Alternative product: Completely free and functional side product that can be used as first exposure to the company or to grow it’s reach. There is no upgrade path in the product itself; in fact, the paid product may be completely separate. Goal is to gain an audience (Ex: Sketchbook by Autodesk, HubSpot’s Website Grader). 5.) Ecosystem: A fully-functional core product that sells other goods, usually through third parties (Ex: iTunes). 6.) Monetizing users: As they say, if you’re not paying for the product, you are the product. This model collects data on users, serves users with ads, places branding on your site, etc. (Ex: Facebook, Spiceworks, OneSignal, Mint.com, HelloBar). Throughout the rest of the episode, we discuss Dexter's 3 characteristics that he looks for in a successful freemium funnel, what limitations are best to put on freemium products, why Spotify is absolutely killing the freemium game with an active user to paid subscriber conversion rate of 40%, how Evernote cracked their freemium strategy, how to set up analytics and data collection for a freemium site and product, and much more. Dexter brought an absolute wealth of knowledge to this one.