Why Freemium Doesn't Work for a Small Business

Here are some thoughts on why we think fremium is a poor business model for a small business. Fremium is a term I first heard spoken by a 22-year old media person at a very trendy BizCamp event.

What does the term fremium mean?

It is a business model based on (initially) offering your product (or part of it) free of charge. Bluntly put, the idea is that once customers begin to use it, and like it, and share it with others, your customer base grows, and you can then later convert it to a base of paying clients.

We’re of the opinion that only certain types of organisations can operate at this level:

  • Those who’ve already secured a substantial amount of funding.
  • Those who’re living with mum and dad.
  • Combined with no 2 above, those who’re probably still slogging it out in the day job.

Here in Northern Ireland, an SME (Small to Medium Enterprise) is defined neatly by Business in the Community:

Small to medium sized enterprises (SMEs) form the backbone of the Northern Ireland economy, accounting for 98% of the total number of businesses and employing 67% of the workforce. Even though as many as 95% employ fewer than 10 people, small businesses make a significant contribution to the economy.

Why not?

  1. You need to eat, right?
  2. If you need to order in stock, you may find suppliers rarely operate on the fremium model. You need to have something in the bank to pay them.
  3. Utilities suppliers? Ditto.
  4. What happens to the perceived value of your product if you value it at zero?
  5. If you work in an industry where there are other similar suppliers, what does that do for the value of similar products and services?
  6. Can you see a future where people will demand certain things are supplied free of charge? Think of the news industry, where there are so many alternative sources, media are struggling to get people to pay for online content. It’s been supplied for free for so long. Consumers demand it.
  7. At what point do you start charging? Will it cause a backlash and negative publicity surrounding your offering?
  8. Are you a mug?

These are only our thoughts, and there are bound to be exceptions, but I don’t know of any successful models in Northern Ireland? Do we ever work for free? Rarely. We get asked all the time. Less and less though. And, our choice of who to do pro-bono work for is strictly regulated (our rules).

Let us know your thoughts, particularly any Ireland/UK examples of fremium-based SMEs.

Image credit: oskay.