Recap from The Freemium Summit 2010

Charles Hudson (@chudson) organized The Freemium Summit yesterday in San Francisco. The speakers brought their A-game, including sharing great details about what they've learned about their growth economics. Thanks to River Twitter, and especially the coverage by Marc Perramond (@perramond), Jeremy Nusser (@jnusser) and Cindy Alvarez (@cindyalvarez), it was hugely valuable even for those of us 3,000 miles away.

I pulled together some of the pithier bits (still raw tweets) as notes to use going forward. Sharing them here too for all. I was in and out all day, so it's not a full capture of all the goodness, but here's a sampling.

Presentations & Slides

Ranjith Kumaran, YouSendIt
@ranjithkumaran
Consumer Freemium vs. Enterprise Freemium

Lincoln Murphy, Sixteen Ventures
@lincolnmurphy
Freemium and the Enterprise - Proceed with Caution


Aaron Levie, Box.net
@levie
Audacity of Freemium

And here's Liz Gannes' GigaOm summary:
Case Studies in Freemium: Pandora, Dropbox, Evernote, Automattic and MailChimp

Pandora

Tom Conrad

@perramond Listening to Tom Conrad, CTO Pandora talk about journey from paid to free to freemium #freemiumsummit

@WebNewser Pandora's growth rate quadrupled "overnight" after switched from paid service to ad-supported (in 2005) #freemiumsummit

@WebNewser Tom Conrad, Pandora CTO: Also, Apple immed. called to ask for all ad inventory (after they switched to ad-supported in 2005) #freemiumsummit

@perramond 6 months in, Pandora moved from paid to free (ad supported) in under 3 days, "growth took off like a rocket" #freemiumsummit

@perramond Pandora launched free WITHOUT an ad server - hard coded ads at first (e.g. Apple bought all ad inventory) #freemiumsummit

@jnusser Everytime Apple changed their creative, Pandora had to relaunch the site (no ad servers) - @tconrad @ #freemiumsummit

@tconrad talking abt pandora going from free to subscription 10hr free trial #freemiumsummit

@jnusser With no promotions or differentiation, original subscription offering on Pandora dipped to below 1% #freemiumsummit

@perramond From '05 to '09 Pandora grew to 18MM monthly uniques. Did not promote subscriptions, conversion dropped way below 1% #freemiumsummit

@shaig Tom Conrad at Pandora, indicated that Pandora has 20M uniques #freemiumsummit

@perramond Pandora's first freemium play focused on differentiated features (fewer limits, no ads). Subscription rates crept up #freemiumsummit

@jnusser Pandora - 1.5% - 1.6% of uniques are subscribers today #freemiumsummit

@jnusser Pandora subscribers make up 15% of overall revenue (300k subscribers total) #freemiumsummit

@jnusser 40hr / month cap impacted 4% of userbase at Pandora - 99% of people hit the cap turn into subscribers #freemiumsummit

@Jeff #freemiumsummit @tconrad on Pandora: 1.5% of m/u's subscribe (300K users), will be 15% of total 2010 revenues. Free trial is critical

@kir at #Freemiumsummit, @pandora's Tom Conrad: "we want the free version of Pandora to be an exceptional service". explains the brand loyalty.

@chest $50MM '09 rev, EBITDA profitable Q4, 1.6% of uniques are paid subs, 300K paying $36/year, 15% of '10 rev @tconrad #freemiumsummit

@jnusser Selling music is more altruistic / promotional for Pandora - not a driver of revenue (would barely cover delivery costs) #freemiumsummit

@WebNewser @tconrad: Tip jar worked for Pandora in early years, passionate early adopters who wanted to give back. Now not so much. #freemiumsummit

@jnusser Subscription base goal - low single digits (be delighted w/ 3%-4%) for Pandora One #freemiumsummit

@jnusser Pandora is just starting to reach out to annual subs - not sure what their renewal rate is or will be #freemiumsummit

@jnusser Revenue models / 3rd party distribution - no economic exchange w/ any of the consumer electronic mfgrs that Pandora is on #freemiumsummit

@perramond Good question about OEM / channels for Pandora - Now on 100+ consumer electronics but still no licensing or rev share deals #freemiumsummit

@jnusser Freemium is a numbers game and is all about doing a lot of little things right (not one big thing) #freemiumsummit

"Before Pandora I ran engineering at Pets.com so I just about single-handedly destroyed the US economy." @tconrad #freemiumsummit

DropBox

Drew Houston

@jnusser next up @drewhouston of DropBox at the #freemiumsummit - millions of active users w/in 1-2 yrs of launch

@perramond Drew Houston, CEO of DropBox now on stage. Launched in Sept 2008 "born freemium" - Free 2GB storage, upsell to 50GB @ $9.99

@cindyalvarez "For freemium to work, each paid user has to pay for cost of serving X free users as well as themselves" - @dropbox #freemiumsummit

@ralenda dropbox marketing plan: techcrunch, adwords, hire vp of marketing or pr firm.  Hilarious, us marketing people are monkeys #freemiumsummit

@jnusser freemium doesn't work if cost of acquiring free users exceeds paid user profit margin (spread across supported free users) #freemiumsummit

@jnusser put another way, LTV must > than CAC @drewhouston at #freemiumsummit

@perramond The ad words CAC for @dropbox resulted in negative margins... "paying thousands of dollars to acquire $100/yr subscribers" #freemiumsummit

@perramond Big lesson for @dropbox stop all paid search! #freemiumsummit

@ddukes Drew Houston: Search keywords are great for harvesting demand, not creating it #freemiumsummit

@jnusser freemium means most of your marketing spend is supporting free users - doesn't leave much left over for SEM & affiliates #freemiumsummit

@perramond Shifting to SEO, big problem for DropBox was that nobody was searching for them #freemiumsummit

@@cindyalvarez Dropbox big prob: "no one was searching for us." new market, ppl don't realize they have that problem.  #freemiumsummit

@perramond Despite search challenges (SEM and SEO), DropBox grew quickly via Word of Mouth #freemiumsummit

@ralenda 100k to 200k users in 10 days for dropbox via WOM. Nice #freemiumsummit

@cindyalvarez Users' inner monologue: "I didn't realize I needed this!  ... It actually works!"  (the Dropbox epiphany) #freemiumsummit

@pkim "Reaching product/mkt fit cures all sins of management" - Drew Houston, Dropbox #freemiumsummit

@perramond Free users, despite low conversion rates, are valuable for referrals, network effects, mindshare, postpone conversion #freemiumsummit

@perramond DropBox went from unknown to leading in their space w/ millions of users in < 18 months #freemiumsummit

@cindyalvarez "Let's give people tools to make their natural Word of Mouth behaviors easier" - Dropbox #freemiumsummit

@perramond Summary of findings by Drew at DropBox. Bad: paid search & affiliates a "horrible failure".  Good: 2-sided referral program #freemiumsummit

@perramond DropBox signup conversion rate went up 60% after introducing 2-sided referral! #freemiumsummit

@chest "Referral program w/ 2-sided incentive permanently increased signups by 60% (modeled after PayPal)" -@drewhouston #freemiumsummit

@ralenda "too much free, not enough -mium" @drewhouston pretty funny #freemiumsummit

@aihui Referral pgm works best for dropbox. Give free space as incentives - @drewhouston #freemiumsummit

@om Dropbox found referrals work much better that search marketing when it comes to freemium http://bit.ly/9awpPN #freemiumsummit

@nickchandler1 Big wins in conv/monetization from optimization; easier to undertake later, with a quality product/service at launch #freemiumsummit

@cindyalvarez Good: effective way to grab mkt share quickly, bad: easy to leave $ on table, ugly: free users consume lots of resources #freemiumsummit

@perramond @drewhouston at DropBox relying heavily @DaveMcClure's AARRR start-up metrics for CAC optimization - http://bit.ly/bvJsRf  #freemiumsummit

@jnusser DropBox - 30% of engineering efforts are focused on retaining paid users - #freemiumsummit

@chest "Too much free, not enough mium. Unlimited undo history =  50% of hosting costs so we made it a paid feature." -@drewhouston #freemiumsummit

Evernote
Phil Libin

@ralenda Next up  @plibin from #evernote #freemiumsummit

@perramond Phil Libin, CEO of Evernote on stage. Evernote aims to be "your external brain" and capture everything. #freemiumsummit

@perramond Evernote business model "free forever". They want their free users to LOVE their product.  If you love it, consider upgrade. #freemiumsummit

@chest "We are not a social app. We don't care about ur friends nor what they're doing. We care about ur brain" -@plibin #freemiumsummit

@cindyalvarez @evernote - our free is always free, ppl can go back/forth btw free and paid w/o losing anything #freemiumsummit

@perramond Evernote - Subscriptions are $5/month or $45/year (interesting spread... renewal rates on monthlies low?) #freemiumsummit

@perramond Evernote - 2.7M free users, 50K premium users after 28 months (1.8% of total users, 6% of active users) #freemiumsummit

@jnusser RT @perramond: Evernote supports 6 languages - 60% users are US, 40% users are rest of world #freemiumsummit

@perramond Evernote - Premium users growing faster than free users.  Month to month user growth is 10% but revenue growth is 18% #freemiumsummit

@shaig Evernote: 10% increase in users month over month, for the past 1.5 years, I love their service, they are killing it! #freemiumsummit

@chest "Multi-platform use is single biggest predictor of whether a user is going to convert." -@plibin #freemiumsummit http://twitpic.com/1b2ena

@perramond Evernote monthly cohort analysis shows loss of 65% to 75% in first 2-4 months, then it is totally flat. #freemiumsummit

@jnusser Tracking & grouping by subscriber cohort shows an initial drop-off, but levels out to "hard core" users #freemiumsummit

@perramond Evernote - as people keep using Evernote, they're more likely to convert so as cohorts age, they become more valuable #freemiumsummit

@shaig Evernote are obviously metric driven, their slides are very interesting and provide very granular data #freemiumsummit

@chudson If you want to understand cohort analysis, you should check out @plibin - awesome slides and insights. #evernote #freemiumsummit

@patrickmoran 77% of @evernote subs are annual.  #freemiumsummit http://fuze.me/3OT

@jnusser Conversion rates by cohort age at Evernote - starts at less than 1% (first month), but jumps to 4% for users after 18mo #freemiumsummit

@cindyalvarez "Only 0.5% sign up & go premium w/in same month, but 4% of a cohort have gone premium by 16mos" - @plibin #freemiumsummit

@jcjohnson #freemiumsummit Evernote premium subscription driven more by 'tip enticement' than by need for premium features

@jnusser If users stay active - over 20% are converted at 2yr mark - Evernote - #freemiumsummit

@perramond Evernote conversion rates grow quickly as cohorts age (0.5% in month 1, 1% in month 6, 2% in month 12, 6-8% in month 24) #freemiumsummit

@jnusser monthly variable expenses / user drops dramatically over time - to about $0.09 after 1yr (hardware, electricity & salaries) #freemiumsummit

@jnusser Evernote - making $.25 / active user at a cost of $.09 (per month) #freemiumsummit

@perramond Evernote aims for the "perceived value" of the product to grow quickly over time, to the point of being invaluable #freemiumsummit

@davemcclure Evernote key takeaways 1) Great long-term retention 2) Product incrsng value over time 3) Low variable costs  #freemiumsummit rt @perramond

@om Evernote users increase in value over time> focused on making arpu bigger than its variable expenses. http://bit.ly/9awpPN #freemiumsummit

Making Freemium Work on Mobile Platforms
    * Clive Downie, ngmoco
    * Andrew Lacy, Tapulous
    * Jeff Smith, Smule


@perramond Now on stage for "Making Freemium Work on Mobile Platforms" panel: Charles Hudson, Andrew Lacy, Jeff Smith, Clive Downie) #freemiumsummit

@jnusser Freemium on mobile panel - common to have altered their business model, Tapulous changed from ad-based to microtransaction #freemiumsummit

@perramond Tapulous evolving from free to freemium, enabled by things like micro-payments capability on Apple AppStore #freemiumsummit

@cindyalvarez "You don't always have to be in the top 25 if you can RETAIN customers" #freemiumsummit
...re App Store

@jnusser Need to either 1) be in top 25 on app store or 2) aggressively retain and engage your users: Andrew/Tapulous & Clive/Ngmoco #freemiumsummit

@perramond ngmoco realized they weren't going to be a "company of consequence" with paid app, so monetizing usage vs. up-front purchase #freemiumsummit

@jnusser You can make a good living at paid apps, but to reach & build relationships w/ large #s of consumers - freemium works #freemiumsummit

@perramond Smule's Jeff Smith: freemium not necessary for success on Apple AppStore - only 3 of top 100 highest grossing apps are free. #freemiumsummit

@jnusser Challenge w/ paid only model (mobile apps) - hit driven biz vs. scale driven - Andrew of @Tapulous #freemiumsummit

@jnusser Piracy is a big concern for paid mobile apps - 20% - 80% depending on app - not an issue for freemium #freemiumsummit

@cindyalvarez "When we changed biz model, we had to change the way we designed games" @clivemoco #freemiumsummit

@perramond Jeff Smith @ Smule key priorities for freemium on mobile: 1. customer acquisition scale, 2. usage #freemiumsummit [where usage = addiction]

@jnusser Design is key, will drive users to pay & engage #freemiumsummit

@jnusser Facebook is a platform, hard to get a "zynga-size" player on the iphone (much smaller reach) #freemiumsummit

@jnusser It's easy to buy something on the iphone, not the case on the web in general - Andrew of @tapulous #freemiumsummit

@perramond Andrew Lacy @ Tapulous - biggest challenge is the initial purchase hurdle (logistics and psychology), Apple handles it all #freemiumsummit

@jnusser last two @tapulous applications are $5 apps - experimenting with new models, plus contain music w/ licensing fees #freemiumsummit

@jnusser Jeff Smith - "We don't make strategic decisions, we make financial ones" re: developing on android vs iphone at #freemiumsummit

@jnusser ngmoco is a "mobile internet" company - which is iphone, ipod touch & ipad for now #freemiumsummit

@shaig Clive Downie of ngmoco "The only viable gaming devices for them is iPhone, iTouch and iPad" no love 4 Google or anyone else #freemiumSummit

@sumeet_jain #freemiumsummit jeff smith @smule, no plans for android this yr. Device HW platforms too diff to provide integrated immersive experience

@perramond Apple AppStore mechanics deep-dive in mobile panel is a good reminder that ANY market place can / will be gamed.  #freemiumsummit

@jnusser "Don't believe the ECPMs that the ad networks tell you, shop around & be careful w/ the SDKs in your games" Clive of @ngmoco #freemiumsummit

@shaig Clive Downie of Ngmoco @clivemoco, indicated that 70% of crashes of mobile apps are due to ad related SDKs #freemiumsummit

@jnusser 2player tap tap revenge is not a significantly used feature, but it's how users share the application w/ their friends #freemiumsummit

@jnusser 2player tap tap revenge is not a significantly used feature, but it's how users share the application w/ their friends #freemiumsummit

@chest "B4 writing a line of code, we ask whats the experience that causes someone to show someone else in a bar?" @jeffreyniusmith #freemiumsummit

Zoosk
Shayan Zadeh

@perramond Have you heard of Zoosk? Me neither but impressive growth in what I assumed was an over-saturated dating app market #freemiumsummit

@perramond Zoosk started as a Facebook app. Benefited from viral reach, efficient distribution, low barriers to customer acquistion #freemiumsummit

@perramond But Zoosk wanted to have a direct relationship with users, scale beyond Facebook ("only" 400M) and build a lasting brand - #freemiumsummit

@jcjohnson #freemiumsummit @Zoosk launched on FB then moved users onto their platform - removing dependency on FB

@cindyalvarez Zoosk asked for email even though it reduced conversion - so they weren't dependent on Facebook to talk w/their users #freemiumsummit

@shaig Zoosk: 50M users (most via Facebook Connect), but they make sure they own their customers by getting their email address #FreemiumSummit

@perramond Zoosk introduced email opt-in/validation in Jan 2008. Took a hit on sign-up % but they can now talk directly to users. #freemiumsummit

@perramond Zoosk's pillars of success: 1) take advantage of what you can get #freemiumsummit

@perramond Zoosk's pillars of success: 2) adapt to fast-changing environment (i.e. platform features, T&C, etc) #freemiumsummit

@perramond Zoosk's pillars of success: 3) don't become dependent on short-term advantages #freemiumsummit

@perramond Zoosk's pillars of success: 4) remember your advantages won't last #freemiumsummit

@perramond Zoosk's advice for open platforms - Establish a direct relationship with "your user" (e.g. get email & permission to email) #freemiumsummit

@jnusser know your economics - LTV & acquisition cost for freemium #freemiumsummit

@jnusser "if the math doesn't work, you won't last" - Shayayn Zadeh of Zoosk #freemiumsummit

@jnusser Experiment constantly - make them cheap and do a ton - Shayayn / Zoosk #freemiumsummit

@perramond Experiment, experiment, experiment - make them short and cheap, 9 out of 10 should fail, run a TON of them #freemiumsummit

@cindyalvarez When you go to Zoosk every single day, you're in a test group or you're in a control group.  #freemiumsummit #measure

@perramond Zoosk has a complex monetization scheme that includes free, virtual currencies, regular subscriptions ($10-20/mo) #freemiumsummit

@perramond Wow, Zoosk now 2nd in unique monthly visitors in the online dating market #freemiumsummit

@perramond Interesting local market dynamic for online dating. Zoosk slower to reach critical mass in large countries like USA #freemiumsummit



Payments and Monetization for Freemium Businesses
    * Hill Ferguson, Zong
    * Isaac Hall, Recurly
    * Lance Walley, Chargify

@davemcclure #freemoney is the payments panel at #freemiumsummit (FIREHOSE ON)

@davemcclure i'm moderating #freemoney panel with @hillferguson (@Zong) @isaachall (@recurly), @lancewalley (@chargify) at #freemiumsummit

@davemcclure #freemoney in mobile world, carriers are taking anywhere from 10-40% (!) compared to typical credit card / paypal rates (2-3%)

@cindyalvarez: "Mobile payments - worse per-txn economics but 5x higher conversion 2 payments 4 digital content" @hillferguson #freemoney

@julesmaltz: Why do we need billing solutions if we're all going to use iPhones (& Apple does the billing)? #freemoney

@cindyalvarez: "Most of our merchants collect credit card numbers upfront but don't charge until after trial" (Chargify) #freemoney

@perramond: When to ask 4 payment? "Depends on what yr trying to optimize" (signup% vs. conv%) via @isaachall #freemoney #freemiumsummit

@julesmaltz when U outgrow your initial ecosystem / app store u need a billing solution external to ecosystem #freemoney #freemiumsummit

@perramond You should always ask for the cc# (maybe offer a shorter trial w/o) - look up WSJ example on marketingsherpa #freemiumsummit

@cindyalvarez Put yr 1-800 number (or URL) in yr credit card charge desc so consumers don't chargeback when they see it in CC statement #freemoney

@davemcclure Key question for accepting credit cards is PCI compliance #freemoney

@perramond Carriers have lowered their CC transaction rates in last 12 months BUT we're talking 20% instead of 40% [woof!] #freemoney #freemiumsummit

@perramond That said, conversion rates for mobile payments can be 4 to 5 X that of CC payments (did I get that right?!) #freemoney #freemiumsummit

Yammer
David Sacks

@perramond Yammer focused on increasing stickiness - e.g. private B2B microblogging networks inside & outside company #freemiumsummit

@cindyalvarez RT @perramond Recurring theme for B2B freemium co's is 2 channels - Yammer no exception: online self-service & direct sales #freemiumsummit

@umbertom RT @perramond: Avg. freemium conversion rates for B2B (3%) higher than B2C (1-2%) #freemiumsummit

@perramond Yammer results: 1000+ paying customers, 100,000 paying seats, 10-15% conversion rate on seats, project 8-figure ACV in 2010 #freemiumsummit

@carlacorkern yammer @davidsacks says organizations pay to control free users on their network "de risk the value prop #freemiumsummit