Freemium: Worthy of Venture Capital Funding?
April 16, 2010
While I spend a lot of time talking with companies who use subscription or hosted models for generating their revenue, there is something to be said about the increasingly popular freemium model. Freemium models are gaining significant traction as of late and are essentially free for the user with an option to pay for advanced or special features. When startups lack clear business growth strategies the freemium model can help boost their bottom line. Up until recently a lot of startups depended on the display ad model, and while some still do it is a difficult model to scale and create competitive positioning…unless of course you are facebook.
While OpenView Venture Partners has not invested in such a company…yet, there are plenty of success stories out there. Pandora (desktop streaming app with no ads), LinkedIn (business or professional accounts), Skype (free computer to computer calls, and low monthly payments for land lines) , Google AdWords (cost per click), etc.
A lot of companies that I speak with are in dire need of some direction, they have a “cool” website with lots of followers but no clue on how to generate revenue from their ideas. Youtube for instance was not turning a profit until Google showed up on their doorsteps.
The freemium model isn’t for everyone but it certainly has its benefits.