Freemium Everything

A “freemium” product is one that’s free, but offers premium options.

In recent years, mobile gaming has been the poster boy for this model.

Phone games are often free to play, but users are enticed to buy game-enhancing extras.

When it works, the strategy can be incredibly profitable.

King Digital is the most well-known example. The maker of Candy Crush and other freemium games was just sold to Activision Blizzard for $5.9 billion. Billions of dollars in revenue, all from “free” games.

But today, the freemium isn’t just for companies that sell to consumers (B2C).

The model is increasingly being applied to enterprise software, programs that are designed for business users.

Selling enterprise software is traditionally an expensive proposition. For one, the sales cycle is long, often six months or more.

Offering a free product is a great way to cut the time it takes to convert a prospect to a user.

Additionally, until somewhat recently the software itself was extremely costly to build. Today it’s at least an order of magnitude cheaper than it once was. This is due to rapid advances in free development tools, along with a larger pool of talented coders.

Freemium Profits

Zenefits is a leading freemium enterprise software startup. It gives away free yet sophisticated software for managing HR tasks like insurance, onboarding and payroll.

Zenefits delivers a lot of value upfront to its customers. No charge. It’s a great deal for its users, which helps spread the word organically.

It then leverages these relationships with its users to sell high-dollar products like corporate life insurance. And it’s working like a charm.

The “startup” – if you can still call Zenefits that – has gone from being valued at $7 million in 2013 to $4.5 billion in its last round.

AppAnnie.com is another great example of the freemium model at work in the B2B (business to business) market.