Why the freemium model will make you money

Are you a managed services provider or channel partner that’s having trouble getting in the door to speak to potential customers? If so, maybe a freemium sales model is a strategy you should consider.

As a result of the global economic recession, vendors and partners have since come out with new ways of interacting with and selling to customers. This sales model is known as the freemium model and Sebastien Ruest, vice-president of services and technology research at IDC Canada in Toronto, said it’s nothing new.

“Retailers have been using this model for years to create interest,” Ruest said. “They offer you one free sausage and eventually you come back for the pack, and then maybe you come back for the buns.”

Technology vendors have recently started using the freemium model within the past 12 months to create interest, generate leads and to find new opportunities they may not have been able to have before, Ruest said.

In the tech realm, Ruest defines freemium as a base service that’s offered for free with extensions and add-ons available through service level agreements (SLAs). There are a variety of freemium offerings out there in the market now, Ruest said, including products, software and even some services. More specifically for freemium managed services offerings, that all depends on the vendor and the partner. Ruest said these could include network architecture assessments, consulting services, or support services for a specific number of users.

“Freemiums are often used as a strategy to get into the (customer’s) company,” Ruest said. “It’s successful as a marketing strategy to identify new opportunities and to get in front of a customer you may not have been able to talk to before. Vendors really started offering freemiums within the last 12 months because prior to (the recession), it was easier to gain interest from clients.”

One remote monitoring and management software solutions vendor, N-Able Technologies, introduced its freemium model to partners last fall and launched it at the beginning of this year. The freemium offer is available on N-Able’s N-Central 7.0 software solution. When a partner purchases a Professional license of this remote monitoring and management software, they receive an equal number of Essential licenses for free. The Essential license is essentially a lighter version of the Professional license.

Gavin Garbutt, president and CEO of N-Able, said the vendor created its freemium model to “address the barriers for the adoption of managed services in the small to mid-size business (SMB) space.”

But if products, services and software are being offered to customers as a freemium, is it possible for partners to make money?

“Yes, because there are a range of services, in the hundreds, so by offering two to three for free, you’re not cannibalizing on your services and sales,” Ruest said. “This model is just a different and innovative way of doing things. It’s no different than if the partner were to go about generating leads the traditional way such as with mail and phone calls.”

N-Central 7.0 is a central console that providers users with the ability to manage and control multiple networks, sites, desktops, servers and network devices, anywhere, anytime. The goal with the freemium offer is to help partners add on services in an a la carte fashion, Garbutt said.

“It’s about going out to customers and saying they’ve got an anti-virus solution today, but they’ll put in a fully managed endpoint security solution which will also provide reporting on their complete environment,” Garbutt said. “Once the partner sees where the customer has problems, such as license and compliance issues, they can make recommendations accordingly.”

For channel partners who use this model, they’ve seen “explosive growth” in their own businesses and in some cases, some even up to 500 per cent growth, Garbutt said.

“Partners aren’t trying to sell customers an all-you-can-eat service contract,” he said. “They’ll now go into a customer and with the solution, they’ll also have an enterprise-class NOC (network operations centre) that also provides reporting. When the service provider goes back to the customer with the report, they can then sell a la carte services and they can more easily cross-sell and upsell.”

Derik Belair, vice-president of business development and marketing at N-able, said in a previous interview with CDN that the freemium offerings should help enable partners to go out and “win more business.”

“This should help partners address their current (end-user) markets and should also help them expand beyond their current portfolio and customer offerings,” Belair added.

For one of N-Able’s Brampton, Ont.-based channel partners, BSC Solutions Group, the company has witnessed this new customer acquisition success first hand.

Bill Boisvenue, president of BSC, said “We’ve had some success with gaining a dozen or so new clients using the freemium model. It gets us in the door because in the past, we’d try to go in and sell the whole package to customers. With the slowdown in the economy, this became more difficult. This helps us find new prospects and earn their trust to become their trusted advisor.”

In offering some services for free, Boisvenue said the freemium model is only “lucrative” when BSC can upgrade customers on some of their services or to a full support contract.

“From the dozen or so new customers we have from this model, we’ve upgraded about half with their services or to a full-support contract. We see a positive ROI in every case, sometimes it’s immediate and in other cases, it takes a few months.”

Another vendor taking advantage of the freemium model is Pleasanton, Calif.-based ManageEngine. This company’s sales model involves “offering free tools with limited functionality that’s limited to a certain number of devices,” Dev Anand, a product manager for MSP Center Lite at ManageEngine, said.

ManageEngine has its MSP Center Lite agent-based remote monitoring and management platform available free for MSPs that want to manage up to 25 devices. Anything beyond this is charged starting at $545 per year for 50 managed devices. Partners then utilize MSP Center Lite to offer services to their customers, he added.

“MSP Center Lite is designed for MSPs, VARs or IT consultants that are just starting up and have maybe one or two customers,” Anand said. “We want partners to get a taste for this product because when they grow, they’ll likely prefer our product and buy from us.”

For the end-use customer base, Anand said there are free offerings available for products including OpManager, a network monitoring software, NetFlow Analyzer, a bandwidth monitoring and network forensics as well.

While freemium offerings are a good way to spark conversations and interest with customers, IDC Canada’s Ruest said it’s important for partners to find ways to differentiate themselves.

“For partners, you need to differentiate yourself through things like architecture assessments, strategic assessments, and so forth,” Ruest said. “Even some sort of benchmark tool that allows you to compare your client’s performance against their universal peers would be a competitive differentiator. Do something for free and then propose a recommendation and solution to remediate the problem. Customers are more willing to listen if you can offer them something for free.”

Follow Maxine Cheung on Twitter: @MaxineCheungCDN.

Would you recommend this article?


Thanks for taking the time to let us know what you think of this article!
We'd love to hear your opinion about this or any other story you read in our publication.

Jim Love, Chief Content Officer, IT World Canada

Featured Download

Maxine Cheung
Maxine Cheung
Staff Writer, Computer Dealer News

Related Tech News

CDN in your inbox

CDN delivers a critical analysis of the competitive landscape detailing both the challenges and opportunities facing solution providers. CDN's email newsletter details the most important news and commentary from the channel.