3 weeks ago we launched CloudAve in turbulent times, so barely a week later I ended up writing about How Software Can Be Resilient to Recession. The summary:
- go where the money is, and that’s businesses (“Enterprise” vs. consumer, even if it means small business)
- deliver value – useful functionality that improves business
- charge for it – companies actually prefer to pay for reliable, good service.
- SaaS : OPEX vs. CAPEX, Sell to User vs. Economic buyer
Back then I was still a bit hesitant to use the Big R word, but by now it’s obvious… what a difference three weeks makes. Naturally the “how to survive” discussions, focusing on business models heated up.
Fred Wilson quotes his friend:
Free is over, I am only investing in services that customers pay for.
Oh, thank you, I strongly agree. I admit I’ve never truly understood Clickonomy, and did not care for the ad-based business model. Of course not everyone believes that the ad-supported model is about to collapse. I don’t have a crystal ball, I just prefer to be conservative in harsh time, and charging for value delivered sounds like an ultra-safe model.
So yes, I predict turning to business, (the “enterprise” in the widest sense) will be the way to survive. There’s just the small issue of how much you charge and how easily (and to whom) you can sell.
As Fred Wilson notes:
We’ve struggled with early stage investments in enterprise oriented web services. Sales to enterprises often require expensive sales teams and it’s much harder to know if you’ve nailed the product/service with feedback from a limited number of enterprise customers.
Need proof? Just look at how SAP’s deep dive today:
On a conference call with analysts Kagermann said customers put planned IT investments on hold to focus on more near-term issues. Financing was also an issue for some customers–especially small to mid-sized companies.
SAP is a strong company, it can weather the storm better then most, but software businesses dependent on a front-loaded, long, high-touch sales process that require CAPEX approval will inevitably falter. The customers are simply not buying.
Which takes me back to Fred and his Freemium model. Freemium is not free. Freemium is paid, the free part is your marketing:
It’s much better, in my opinion, to go with the freemium model, give a version of the service away for free to all comers, get a lot of users, get good market feedback, then develop a premium version of the product/service for sale to enterprise customers. If your free version is popular with a lot of users, your customer base is the target for the upsell and you might be able to live without an expensive sales force initially.
In summary, freemium is far from dead, in fact it may be the business model de rigueur.
Free (forever) is dead. Long live Free that leads to pay = Freemium.