When freemium goes bad, How to fix?

Basically we went down to freemium path quite a while ago, now got thousands of users who don't convert and free version cannibalizes sales (there is no exact way to figure out numbers on this one obviously ).

I think we failed to find the right balance and gave away too much. Now we want to convert as much as possible and kill freemium part of the business eventually.

Considering that this is a native application, what's your experience and suggestions about solving this problem?

We do have about 30K users using our software, current conversion rate is about 0.07% Update: Just to clarify again this is not a SaaS, it's a native application. To do any kind of changes we need to release an update and user can always opt out from updates. Since it's a native application and doesn't require any web component, there is no registration, so we don't have any idea about our current users (not even simple email list)

Are you saying this is a desktop application? You provided a "freemium" download which had few or no limitations?

If that is the case the first thing to recognize is that the thousands of users who already have the product are basically lost customers. Your chances of converting them to paying customers are very slight right now. Stop worrying about them (and stop providing them with any kind of support.) What you need to do now is what most software companies do. Come up with a trial version of your software that forces the potential customer to either buy it or stop using it after the trial is up. Change your web site to reflect that you are selling software, not giving it away.

Part of your web site redesign will be to stress selling your software. Your web site should have enough information to convince many vistors to buy the software without trying it. The point of your web site is to sell software, not to push trials.

Once you are selling an established product, start improving it. When you have accumulated enough new features, make an email pitch (hopefully you collected some information from your freemium users) to the old freemium base. You might convert some of them into paying customers.

FX, you are not in a bad position with the number of users. What you need to do is remove the features from your fremium. Strip down your fremium product to its bare essentials. Next give your current fremium users a discounted "loyalty" plan if they become subscribers.

For example, say your lowest price point is 15 per month. Consider giving the legacy users an option to convert within the next 90 days for $7.50 per month.

Some will quit, (they would never have paid you a dime anyways)
Some will upgrade with the incentive,
and you will be able to move forward with pricing that makes sense for your app.

Of the 30K users signed up for free, do you have any data on how and how much they are using the application? What is the duration of the usage? They may not be getting past a "try it for a month free" version.

Not knowing anything about your product it is difficult to help determine what features could be included in a free version. Some freemium apps include all features, but only allow so much information or so many projects or number of users. Maybe there is a key integration feature you're missing and could add?

I would be careful you do not create a backlash of getting rid of the freemium model and find features people will pay for.

Freemium works - and works VERY well.

All you have to do is look at the say AVG, Avira & Teamviewer - they are making hundreds of millions in revenues (and very profitable) .. and I know for a fact as I am in the industry.

AVG & Avira do well in freemium - EVEN considering they have a cost (minute cost) per free user in bandwidth (virus definition updates).

Yes - Freemium can (WILL) cannibalize some of your sales but ALWAYS keep in mind the reason WHY you're going freemium. It's to seed the market and get to people that you're not getting to with your current marketing efforts (or wayyy too expensive to get to them).

If you put out a freemium product and you don't have a really good marketing plan to spread the freemium out really wide then you will end up with cannibalization. You need to get hundreds of thousands of users to install the freemium. What I mean is if with the freemium you are reaching the same exact people you would reach with the paid version than freemium is a useless exercise.

Don't forget - Freemium is a marketing exercise - a way how to get 'cheap' marketing.

Don't forget that freemium is also a great way to get to the SMB drag effect - i.e. home users get it for free and over time the SMBs will be dragged along and buy it.

Ok - now your problem is that you have 30k free users that you would like to convert more of.

Is there at least a way how to tell these users that there is a new version of the free software? If yes - then I would do the following:

Make a new version (minor or major number) that has a way how the product can 'call home' plus also a component that you can send messages to the desktop through your system. I.e. the free version calls home, checks if there are any new messages and if it does display them to the user (look at Avira for an example on how they do it).

I would also make strong statements in the product that the freeware version cannot be used for commercial use. YES - there will be companies that will cheat and use it anyway - but that's ok - frankly - if someone is going to cheat and use software i prefer he uses mine instead of a competitor's. These type of guys are still good to have in your ecosystem, if they like the product they will be part of your 'word-of-mouth' campaigns (especially if it's at no-cost to you).

If there is absolutely no way in getting in touch with those 30,000 users (i.e. not even a new version update) then maybe you should just forget about those and go on with your new plan.

Decide if you still want to go ahead with the freemium model and this time try to get it right - less features (BUT STILL PROVIDES VALUE) with proper messaging (desktop and/or email) and proper nagging (to buy).

As other readers mentioned - without knowing what the product is it's difficult to get into more details - and also it could be that some things i said don't apply. If you want me to check the product out (install the free version that is) just email me.

P.S. Suggested Reading - Free: The Future of a Radical Price by Chris Anderson

Zingy had a similar situation. They lost almost all of their users when they stopped giving away ringtones and started charging. But they were able to continue growing the company and eventually sold for $80 million. You can listen to an interview of Fabrice Grinda here.

I know the rule is generally not to advertise sites/products, but I for one would be very interested to know specifically the product you're talking about. It would be interesting to get people's opinion on this forum how they view the free/pay-for feature spread from your web site. I am kind of expecting to see something obviously wrong, given the conversion ratio, being honest. But then, end users have been spoilt but free business models over the past 6-7 years, they've come to expect it. This makes your job a great deal harder.