Freemium by Kevin Maggiacomo

How do you feel when you get something for free? Does the hair stand up on the back of your neck as if you’re being set-up for a bait-and-switch, or do you feel like you’ve received something of value at no cost for which you’re appreciative? If you’re anything like me, I’ve experienced both of the aforementioned scenarios. In my opinion there is definitely a right and a wrong approach to “Free.” In today’s post I’ll examine “Freemium” offers and how they might play a part in redefining the commercial real estate industry.

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The reality is that nowadays most of us are accustomed to receiving certain services (information and data) free of charge, and on the surface, with no strings attached and for nothing in return. Not a marketing gimmick like “Buy two get one free” (which is often the same as marking down a 2x marked-up product by 50% if you buy two), or the classic ad supported online newspaper and content model, but an increasingly important economic model whose genuinely free offerings are changing the ways in which consumers use (and purchase) products and services.

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Coined “Freemium,” by venture capitalist Fred Wilson (@FredWilson), the word is a portmanteau, which combines the words “Free,” and “Premium,” to describe a business model which follows one basic principle: Give a core product away for free to a critical mass of consumers, and sell a small percentage of them a premium product.

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Not Gillette, which practically gives their blades away for free, charging through the nose for their razors, or cell phone companies “giving” away the phone and charging for a data plan and two year commitment, but something, which, according to Peter Froberg (@PeterFroberg), a growth consultant with whom I work, “can be used in and of itself, without necessarily buying something else.” He likens the model to the fruit stand operator who offers free, sweet, sliced apples to entice his customers not to buy apples, “that’s fake free,” he says, but to buy pears instead.

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For most, the Freemium model best resonates when discussing Skype. To date, Sykpe’s free VoIP product has provided more than 1B downloads, and provided more than 16B call minutes of “Skype-to-Skype” calls. During that same time period, “Skype-Out” call minutes, Skype’s premium product, has accounted for only 2.2B of those minutes. A low percentage, of paying users, indeed, but enough to generate $21M in operating profit in 2010 (a big swing from their $352M growth related loss of 2009). Other emerging Freemium companies which feature ten’s of thousand’s of users include Evernote, Boardsuite, Linkedin, Pandora, Google (not exactly an “emerging” company), and more.

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Closer to my (industry) home, we find that LoopNet has been operating with a Freemium model for years – Free to post, free to search but with a paywall over Premium Search (access to newly listed properties), and Premium Lister access, which features more prominent portal placement and access to leads. Like them or not, the Freemium model has served them well…they are a profitable, $750M company recently acquired by CoStar.

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Hundreds of businesses, most of which are in technology or in the Web 2.0 space are utilizing Freemium models to generate profits – giving something away for free, and charging for another, often completely different product in the process. And in the course of my researching the Freemium space, it occurred to me that commercial and residential real estate brokers alike have for years been operating with a Freemium model.

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Peruse any national brokerage’s website, and you will find an abundance of free, well written subject matter, like market overview’s, reason’s to buy, reason’s to sell, and so on (at SVN, we just released our annual “Top Market’s To Watch” report). For some of the same reason’s I’m blogging, which include strengthening my personal brand, establishing credibility by demonstrating my ability to think critically, these companies work to create valuable content and strengthen their brands in the hopes that the reader will buy something else – their premium products.

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However, just as Freemium is emerging as a legitimate business model supported by empirical data, I’m hearing more about the brokerage best practice of charging for everything one does – no more free advice, abstracts, surveys and reports. So for those of us who are CRE practitioners, I ask you – Is the aforementioned “best practice” yet another example of the brokerage industry operating in the stone ages…a little slow on the uptake, or does the Freemium concept represent what leadership and strategy advisor Mike Myatt (@MikeMyatt) refers to as a “next practice” capable of creating a disruptive change in an industry prone to herd mentality? While I believe there to be truth in the old saying “free is a very good price,” I’d be interested your opinions – please do share.

Kevin Maggiacomo, CEO & President, Sperry Van Ness International Corporation

 

*All Sperry Van Ness® offices are independently owned and operated.

 

1 Comment

  1. Michael Griffin on August 15, 2011 at 6:29 pm

    Kevin, I’ve come to expect the same amount of free samples of the web as most people. I don’t mind paying for things though. I shell out money all the time for apps on my iPhone as an example. They’re cheap, and I get value. There’s little downside.

    To me the risk with “freemium” is the consumer’s loss of understanding that imparting value is worth something. I think freemium certainly has the potential to be disruptive in certain business models. It also has the potential to erode value as everyone tries to up their free ante. Where does it end?

    Among other things I think this demonstrates how important relationships and quality service continue to be in business. As has always been the case, a customer is less likely to switch to a lower cost option if the service is good. Even if that lower cost option is free.