Evernote, a poster child for the freemium model, is showing signs of struggle, but associations may be better equipped to make the buzzy business model work.
In 2010, Evernote CEO Phil Libin delivered a perfect summation of the freemium business model, a money quote unassailable for its utter simplicity: “The easiest way to get 1 million people paying is to get 1 billion people using.”
Six years later, Evernote is still at it, having graduated from startup darling to the sprawling incumbent atop the note-keeping app market, passing 100 million users in 2014 (not a billion, but not bad). Freemium, however, is perhaps proving to be less of a snap than Libin made it sound.
Freemium demands a delicate balance between paid customers and a free user base.
At the end of June, Evernote announced a price increase for its Plus and Premium plans, coupled with new limits to its free service. This triggered some cost comparisons among users between Evernote and its emerging competitors, but a more critical reaction came from Tom Petrocelli at CMS Wire, who argued that Evernote’s changes reveal the fundamental faults in the freemium business model itself. He did not mince words:
The freemium business model’s problem is that it requires a high enough conversion rate to justify the costs of the free users who stay free. It’s a built-in problem. …
It’s a Catch-22: Keep spending money on users who will never pay for a subscription or have no base from which to convert users to subscriptions. Evernote has faced this problem as it matured — it has to continue to develop software for people who will never pay for it. …
These changes have all the earmarks of desperate cost-cutting. The burden of so many free users is weighing down the Evernote business and it has probably figured out that most won’t convert. In these situations, it’s easy to think of free users as freeloaders who the company is better off without.
Freemium has gotten plenty of attention since the term was coined in 2006, and Chris Anderson’s analysis in Free: The Future of a Radical Price put it on the business-trend map. Associations have been paying heed just as long; “freemium” was included as a trend to watch in ASAE’s 2008 environmental scanning guide Designing Your Future.
So, what does the recent move by Evernote—something of a poster child for the freemium model—say about freemium, particularly for associations? Is it as flawed as Petrocelli says it is?
First, let’s acknowledge that freemium is but one variation on the basic “get them in the door” tactic, which has been used everywhere from baseball games (cheap tickets, expensive beer) to shopping malls (cheap picture with Santa, expensive gifts in the stores). It may be best viewed as one portion of a spectrum of business models, rather than an island to itself. For instance, the tiered membership models we’ve highlighted here in the past sometimes qualify as freemium if the bottom level is free.
Petrocelli at CMS Wire makes some valid points that freemium demands a delicate balance between paid customers and a free user base, particularly when the upsell is limited to a few options. As recently as 2014, Evernote’s primary revenue source (70 percent) was indeed reported to be its Plus and Premium subscriptions, while 15 percent came from its enterprise product and 15 percent came from the branded accessories in the Evernote Market—the latter of which was shut down earlier this year, presumably leaving paid individual subscriptions as an even larger share of revenue.
This is where associations may have an advantage in putting freemium into action, because they have a far more diverse platter of revenue-driving products to serve up to their base of members and prospects. In comparison, the average association’s membership dues make up 38 percent of its revenue, according to past ASAE research. Free membership and paid membership aren’t the only options at an association’s disposal. It can enroll free members and then sell them books, training courses, conferences, tradeshows, research, awards programs, and so on and so on (and, sure, even branded accessories).
Viewed this way, one could argue that associations have more or less always been doing this, in the form of selling to nonmembers. Freemium, then, for associations is less about adopting a new business model than it is about conferring “member” status on prospects for free and granting a few low-cost (and perhaps already free) benefits to them. Member is an important word to associations, though, so this move comes with decisions to make about who qualifies as a part of an association’s community and how near or far the association wants to reach.
For associations that have adopted a freemium option, getting people in the door is surely a motivating factor, but almost all of the ones Associations Now has covered also cite a mission-based desire to broaden their reach and become more inclusive. For examples, see CompTIA, the American Society of Plant Biologists, the American Alliance of Museums, the Alliance for Women in Media, the Northwest Food Processors Association, and the American Dental Education Association.
And so the changes at Evernote provide, if not a red flag, then a yellow flag for associations, cautioning them to pay careful attention to the exact balance they strike between building a customer base through free offers and earning their dollars with premium ones. But associations may be better equipped to dodge the potential pitfalls of the freemium business model because, despite the buzzy moniker, freemium isn’t all that different from the traditional model associations know and love.
Are you an Evernote user? How will the changes influence your relationship with the company? And how does the freemium model relate to your association’s membership methods? Have you tried offering a free option? Share your thoughts in the comments.