I am building an application in my spare time, and I want to get my plan right from the start. I think Freemium would not work for me given several constraints I have. The approach I want to use is this (up to 1.0 release):
State clearly on the website that the application is in development, alpha/beta/whatever it is at that moment, and equally clearly from the start that it will turn into a paid application when it reaches 1.0 stage. This should be fair enough to avoid the "surprise" effect some companies do on their users. Thus, what I would have is a downloadable piece of software users can play with while it's completed.
My question is, are there any significant drawbacks to consider with this approach? Also, I intend this to be an "ongoing pilot", and I am not quite sure how to handle the communication aspect of it. What kind of approach should I use to communicate with prospects? I have browsed several similar questions, but none of them really was enlightening or definitive for me.
Thank you very much for your insights.
I would recommend you let your offering be free during beta. I'm generally opposed to freemium but it depends on the use case. Could you offer a free version that's rate limited/throttled? For something like, e.g., a twilio integration it would make sense to start charging above a certain amount of usage.
The key in my mind is not leaving beta until you're comfortable that your service provides tangible value. If it does, then don't shy away from asking for money in exchange!
Ash Maurya in Running Lean recommends starting with a single price free trial model and working backwards, if necessary, to a freemium plan and forward to other premium price points. In his chapter on Revenue Streams and Cost Structures he outlines a number of reasons for this approach including managing customer expectations, raising customer commitment, generating cash flow, and tackling one of the more challenging areas of your business model - pricing. But the most important point in my mind is that generating a lot of free users early creates a lot of noise and very little signal around what your pricing structure should be like. In addition to the Running Lean ebook check out Neil Davidson's "Don't Just Roll the Dice" ebook on pricing and the Entrepreneur's Guide to Customer Development which will also address how to communicate with potential customers. Another thing to keep in mind is you do not have to have a lot of customers to acquire the learning you need to correctly cost and price your product. BTW, what you are describing sounds to me more like it should be a closed alpha with hand picked early adopters. That might make sense to pursue at no cost for a limited time. Remember every customer on a "freemium" plan comes with a cost to you - a marketing or acquisition cost, a hosting cost, a support cost, and a signal to noise cost. Definitely not free. Good luck.