Why SaaS Companies Are Giving Away Their Products–And Why That’s Here To Stay
End users—whether it be a developer, individual marketer, sales rep, or someone at the edge of an organization—are now the most important constituents in software buying. Though this shift has been happening over time, we saw it accelerate last year as COVID-19 brought about rapid digital transformation.
SaaS companies quickly adapted by making their tools available for free or at a discount. You’ve probably seen news reports featuring the nearly 200 free tools to help folks get through the pandemic.
But this wasn’t just altruism from tech companies with massive balance sheets. And it wasn’t a once-and-done promotion. This trend is here to stay because SaaS companies realized the power of free products in broadening their appeal to end users and helping to generate a wave of new customers.
GitHub, which went free for teams in April, stressed to TechCrunch that “this move had long been on the roadmap.” New Relic announced a generous free tier in July, aimed at individual developers. Meanwhile, PagerDuty introduced a new free plan in September, and JFrog waited until October before introducing its free community edition. Even Appian, which has a new deal size of $100k+, jumped in with a new free trial.
2020 was the year of free. And 2021 is the year of reaping the rewards. Let’s dig into what happened when SaaS companies started to give away their products.
In spring of 2020, GoDaddy tested freemium as a small-scale experiment for their Websites + Marketing product, an all-in-one website builder with integrated marketing. They’ve recently increased the experiment to include 50% of U.S. visitors.
Key performance indicators (KPIs)
- 7-day conversation rates
- 90-day conversion rates
- Millions of new signups
- Higher than expected conversion rates
GoDaddy CEO Aman Bhutani remarked that freemium is a “tailwind to [their] business for years to come,” so it will be interesting to see if they experiment with this model for their other products where it makes sense.
Atlassian added free tiers for all of their products in fall 2019. With products “always free for 10 users,” small teams can quickly get up and running.
Plus, if you’re at a company that’s an existing Atlassian customer, you can sign up for a free version—no admin approval or credit card needed.
- Active usage
- Adoption of new products among existing customers
- Higher top-of-funnel, longer tail of conversion
- Net revenue headwind for the fiscal year
Freemium is building a “big base of customers and potential customers underneath [their] business,” according to Atlassian CEO Mike Cannon-Brookes. But because free tiers have no urgency to convert, Atlassian is looking at leading indicators of long-term success including the active usage of its products by free users.
Aiming to create a friction-free way for people to evaluate JFrog products before purchase, the company launched a free product in Q3 2020 that includes an unlimited number of users and repositories, but with limited storage (2 GB) and CI/CD minutes (2,000).
- New registrations
- Sales funnel influence of free users
- Conversion from free to paid
- Enterprise-scale subscriptions originating from the free offering
- Big increase in registrations
- Free → sales pipeline
Recently JFrog CEO Shlomi Ben Haim noted that they “continue to see rapid adoption of this free version… thousands of registrations choosing JFrog, starting as users and then entering the sales funnel.” This is notable considering that JFrog had approximately 6,050 paying customers at the end of 2020, an increase of only 450 compared to the end of 2019. The new freemium strategy opens the door to substantial potential customer growth in 2021.
During the height of the pandemic, Spofily increased the length of their free trial from 14 days to 90 days. They’ve since moved it back to 14 days, and their CFO Amy Shapero remarked that they will “selectively deploy it going forward” because they “think generally the 14-day free trial is working well.”
While the 90-day trial was available, Shopify saw a “dramatic” increase in merchants coming to the platform. That unfortunately slowed down toward the end of the offer, likely because it acted more like a promotion.
- Free-to-paid conversion
- Increased signups
- Conversion rates were high quality
- Likely slowed down free-to-paid conversion
What about other SaaS companies?
HubSpot, Pluralsight, Appian, Cloudflare, and New Relic also rolled out freemium offerings last year. Check out the full report below to see their KPIs and results—and to have all of these findings in one place to quickly reference or share with your team.
But don’t let that keep you from making incremental changes that set you up to scale to $100+ million ARR in the long run.