2. Web 2.0 is too ambiguous to use it in an argument. Established players will steal and implement your ideas (no patent protection), and offer them for free. No matter niche or not – they may think otherwise. Congratulations, you just got your market napalm burnt. Welcome to try make a living here.

3. Not exactly the “entry” barrier, but since Facebook spends hundreds of millions $ annually to host all that “2.0″ content – it is a serious problem for anyone small to do anything similar.

AppStore point is completely off, because there are even more crappy free iPhone apps than paid ones.

That’s what I did on http://www.findajobalready.com.

Barak

The real reason that I created FindAJobAlready.com is to be a real alternative to the big bloated and expensive job boards.  When people ask me, “how come it took you a year and a half to build the site?”, my answer is because this is a re…

Like Patrick, I live and breath this stuff. And until recently the it’s been kind of lonely here in the B2B space… i.e. not a whole lot of peers/reference points for successfully freemium products in the enterprise. But that’s changing quickly and there are more & more examples out there (e.g. check out GoToMyPC’s recent S1 filing to look at what your freemium business might look like “at scale”).

There are a couple of things that we set out to accomplish with our freemium strategy that are worth mentioning…

1. Cost-effective brand awareness & trust

Every day we reach tens of thousands of users in our target segment, absolutely free. We don’t pay per impression or per click — our brand is there for everyone to see without spending a cent on banner ads, Google AdWords, etc. More importantly our free product provides actual value to end users — so we’re actually building product adoption (the bane of many an enterprise app) and a real sense of trust before they ever purchase anything from us. All of this without having to be “sold” on a value prop, differentiation, etc.

2. Incremental revenue from the small end of SMB (1-3 users)

Our freemium strategy also allows us to capture incremental revenue in the small biz segment without being overwhelmed by tire-kickers. Freemium embraces tire-kicking as a free product effectively allows us to wait for people to raise their hands and purchase via self-service (e-commerce) or engage with a sales rep for larger opportunities. But only after having adopted the product and made an initial cost/value evaluation for themselves (based on use of the product, not just a data sheet, whitepaper, or case study.)

Despite being pro-freemium, the nay-sayers on this thread (along with Aaron himself) bring up some valid points for us to keep in mind. Freemium won’t work for every market segment and product category. Our CEO posted on the topic yesterday. He spells out two critical requirements for a successful freemium strategy — scale and conversion.

http://blog.ins...k-for-everyone/

And for those of you offering a freemium product in the enterprise space, I’d love to compare notes sometime and hear what & who are your go-to resources. I follow Andrew Chen, Chris Anderson, and Fred Wilson on the topic but I’m always looking for new perspectives.

Great post and a nice variety of differing comments! I want to add a perspective that is missing: within enterprise apps there exist 2 types: (1) big apps like financials, manufacturing with the need for integration between related modules (inventory linked to work-in-porcess linked to bills of material etc.) and (2) small apps with fewer capabilities and limited integration requirements. For the big apps freemium examples are Zoho and Freshbooks. For the small apps, Google gmail is an example.

One huge advantage of freemium (which a few have already commented on) is that it is a form of “free pre-sales” since the customer gets to try the product instead of having the vendor do the pre-sales, demos etc. It reduces the costs for both vendor and buyer. Another advantage of freemium is that it provides free “product feedback”.

There is always going to be a need for good salespeople, especially in enterprise accounts.

2. There is an inverse relationship between price and adoption. You’ve made a false assumption regarding free and mass appeal. Web 2.0 is all about niche, not mass. It’s when the niche is uber popular that it becomes mass. Exception, not rule. And if your software project is free (or as close to it as possible), how can the ‘established players’ compete? They can’t.

3. I’m not sure how Facebook has a hardware barrier to entry, but OK. And if you want to see a case of paid-fail, look no further than the App Store. Thousands of 99-cent apps that are losing money for their developers. Primarily because of saturation/redundancy. If they coalesced instead around one good app, it would be better for all of us. That’s what open source does, and does well!

The result of encouraging paid software is iFart apps as far as the eye can see.

But flip answers aside… I won’t argue that quip… if we just had some beer, this would be a great conversation.

I think your point about conversion rate is missing a bigger picture; and, I will have to defer to my wife’s argument to explain. She works in web analytics. Every day she gets asked if this or that has raised conversion rate on a website. And every day she asks the same question back: what does conversion rate have to do with anything?

Conversion rate means nothing. As a matter of fact, a drop in conversion rate can be a wonderful thing… it means you’ve driven more traffic to your site. Not everyone buys.

My point, and maybe that of the author, is: would you rather have a conversion rate of 100% with 500 users… or a conversion rate of 1% with 50,000 users?

The law of diminishing returns mandates that you’ll hit a brick wall sooner or later (pay model). Better to keep the rest of the users around regardless (free model). Pure economics.

@patrickmoran