We know how Warner Music Group’s Edgar Bronfman Jr. feels about freemium music services like Spotify. But how does the Web 2.0 community view the model?
Ranjith Kumaran, founder and CTO of the Web-based file transfer company YouSendIt, attacked a number of myths about the freemium business learned over four years as operating as one.
For starters, he said that for all the attention freemium businesses give to their free user base and their conversion rates, neither figure means a thing. “They’re vanity stats,” he said. They look good, but mean nothing.
On free users: “Most of them have no intention of ever paying us,” Kumaran added. A bloated figure for registered users often completely ignores the fact that many of these accounts are totally dormant. People who signed up used the service once and never came back. So in addition to not paying, they’re not using either.
The only stats that matter, he noted, are the number of paid users and their activity (such as how often they sign in and how long they’re using the service). The latter set of stats in particular is what services should focus on to drive more free users to paying ones. By looking at how often users are logging in, and why, services can determine what features to charge for.
Take multi-platform access, such as how Spotify makes users who want mobile access via their smartphone apps pay. Kumaran said users paying for multi-platform access use the service on average three times more than as those who don’t.
Another concern for freemium services is churn. Strategies to reduce this include:
— Upsell customers to different pay tiers or encourage them to promote service to other friends when their renewal period is up.
— Allow users to pause their subscription rather than cancel outright.
— Rescue offers. At time of cancellation, offer a deep discount to stay on for a year. Many do, and use service less, so they don’t tax the system.
— Focus on data. The better you know the user and the market you’re serving, the better. Know your user.
About 85% of paid users who cancel service go back to the free tier rather than ditch the service completely.
“I’d rather they return to my free product that go to someone else,” Kumaran said.
All these are good points, but not all apply to the music industry. The key rub for freemium music services obviously is the cost of licenses.