When Freemium Ain’t Free: Crowdbooster Offers a Painful Case Study

1/30/13Follow @wroush

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it had its hands full just keeping the service running. “We had to continue to work on things that the free users were asking for, so we were never able to focus on the more advanced versions,” Yean says.

Yean’s team spent much of 2012 rebuilding its back-end system to grab the newest data from Twitter and Facebook (before that, the numbers had usually been an hour or two old). Adding the real-time feature pushed the company over the 100,000-user mark. But that was a bit of a Pyrrhic victory, as nobody was paying yet.

Which led to the company’s difficult decision. Just after the New Year, Yean announced that the free service would be discontinued, and replaced with a subscription-based service costing a minimum of $9 per month. (At that level, users can track one Twitter account and one Facebook account; for $39 per month, they can track up to 10 accounts, and for $99 a month, up to 30 accounts.)

Yean is realistic about the likely impact of the change. “I expect to lose most of our users,” he says.

Why not keep some kind of stripped-down, free version of Crowdbooster? “That was definitely an option,” Yean says. “But we don’t think you can do two things—maintain the free version and work on another, more advanced tool—and do it well.”

That doesn’t mean Crowdbooster will never release a free product. It just means they’ve decided to focus for now on earning money. (Obviously, no startup can go forever without bringing in some revenue, but Crowdbooster was in a particularly tight spot, having raised just $500,000 in seed capital.) “Our previous efforts at trying to do two or three things at the same time had not panned out well for us,” Yean says. “So we said, let’s focus on our serious users first, and get good at it, and when we have the opportunity in the future, we will create a free product that casual users are looking for.”

While Crowdbooster will now have to rebuild its user base from scratch, Yean says he doesn’t think of this as a do-over. But it might count as a pivot.

“I wouldn’t see it as starting over, because the product itself is still being used,” he says. “We have all these features we have been meaning to work on, and now we can actually work on them.” The startup will focus first on features that will appeal to small and medium-sized businesses, Yean says.

So, what advice would Yean give to other companies considering the freemium model?

“I would dig deep into the successful case studies to understand whether the freemium model is really working for them,” he says. “A lot of companies use it, and a lot of companies raise money with the user base that free attracts. But if free is really working, then why are they raising money?”

Actually, there’s a good answer to Yean’s question. Sometimes you don’t need to convert very many of your free customers into paid customers in order to have a lucrative business—Evernote (with conversion rates in the low single digits) comes to mind. But to attract enough free users to yield a good crop of paid users, you might still need to spend a lot on marketing. You also need to make sure that your free product is actually useful, and isn’t just a deprecated, feature-poor version of your paid product—and this, too, is expensive.

All of which, in the end, reinforces Yean’s point: freemium is risky. Before trying it again, he says. “I would need to find more case studies of freemium working. And I would err on the side of it not working.”

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • http://www.carlease.uk.com/ CarLease UK

    I believe that it is still very difficult to ascertain the overall commercial benefit of social media as a whole. However there is no denying the increasing involvement and interaction of businesses at large who are banging out huge amounts of social signals. The point is we are all interested in being involved as opposed to excluded, and tools like Crowdbooster at least give some level of measure. What is the next level though, will social media as a whole ever create an influence as say simple ppc in a purely commercial sense?

    • http://crowdbooster.com/ Ricky Yean

      I think there are definitely ways to make social media simpler like ppc. =)

      • http://www.carlease.uk.com/ CarLease UK

        That’s interesting Ricky, I think we have have mainly concentrated on ppc and now are trying to catch up on the social media channels. Please have a look at our SM offerings via our website http://www.carlease.uk.com and kindly give me your thoughts

  • temel

    classic case of focusing on product development timelines and not focusing on creating and validating the customer base. Its one thing to give something away and another to have someone pay for a product.