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The Physics of Freemium

Let's consider a few models mechanically. It may change your perspective of freemium.
by

Jack Mardack (@2hp)

on 20 April 2014

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Transcript of The Physics of Freemium

The Physics of Freemium
I'm from New York
San Francisco
Job: Growth Hacker
@2hp
A quote:
"Enlightened trial and error outperforms the planning of flawless execution" – David Kelly, founder of Ideo
Gigs
This Talk
I'm going to encourage you to look at freemium models "mechanically".
Why? Because that's how they make sense to me.
Terms
"User Momentum" -- a relative measure of a user's propensity to perform actions in the product -- (uM)
"Total Energy" -- a measure of the total energy in your system, as calculated by:
Avg. uM x #Active Users
"Resistance" -- the degree to which the product stands in the way of users performing actions.
Jack Mardack
A simple input-output system
Users go in, effects come out
Physics
of the Funnel
$
Other Good Effects
Revenue
Model #1
signup
pay
use
Sustain/increase uM
Must overcome paywall "Resistance"
$
Functionally constrained or
Time constrained
FriendFinder
Continuous
email marketing
Created a "kind of" free use: search for dates
Would actually Increase uM
1:20
2.5 mos.
Average
Retention
Average LTV
100
Constrained, but...
Model #1
Pros
Cons
Easy to optimize
"Straight shot"
Simple
Easy to model and project
Dissipates a lot of Energy
Signups with lower uM never use the product
FriendFinder
Growth Hack
Exploit User Data in Marketing
Game Changer
The Big Idea:
Members in Westfalen, Germany
Model #2
No constraints
Unlimited
free use
"More"
Other
Find an alternative, optional, parallel use case that generates revenue.
Should not interfere with free use
Should not be compulsory
Should naturally attract some percentage of your total active users.
$
in 2002
Eventbrite
in early 2008
Crowded SaaS space
Modest WOM-driven growth
Expensive CPAs
No idea what the value model was
LTV = unknown
So, how do you accelerate growth?
The Winning Strategy
Event software spectrum in 2008
Regonline
& Acteva
evite
enterprisey
contracts
hard to use
Web-stupid
focused on registration
expensive
consumerey
easy to use
still pretty Web-stupid
focus on email invites
free / ad-supported
free with no constraints
very easy to use
Web-smart
Pulled in users from a wide section of the spectrum: from birthday parties to big conferences.
$
When people sell tickets
Lots of events of all kinds
Lots of email invitations
Eventbrite
Eventbrite
Competitors weren't even trying to expose events as content.
Event listings SEO was owned by spammy aggregators, like zvents.com and eventful.com
What would happen if we (a primary publisher and a PR 7 site) made a point of getting all our events indexed?
eventbrite.com/directory
got all events indexed
got listed for a long tail of city + event type combinations, like "Concerts in Canoga Park"
Opened event-seeker traffic floodgates
Wayback Machine: http://goo.gl/1lwHk
millions of
event seekers
events
event
organizers
$
event seekers became organizers!
1:100
eventbrite.com today
Growth Hack
Almost entirely attendee-facing
Model #2
Pros
Cons
Lets users of various uM levels use the product
High potential maximum E
lots of usage (of all types) to iterate the product against
Complex
Hard to model predictively
You need to have deep analytics in place to figure out what's going on
Hard to optimize for revenue
Prezi
Public
Private
prezi.com/pricing
>1.5 million
signups/month
30-day free trial
trial-to-pay rate
$
250k
prezis/day
Upgraders
$
seekers + organizers = "events marketplace"
The Bigger the Free Use
The Bigger the Revenue
presented by Jack Mardack
So, how are we hacking growth at Prezi?
http://siteanalytics.compete.com/prezi.com/
User-generated content
Referrals
User data
email confirmation
location
gender
interests
sexual orientation
So how do you make money?
Full transcript