Do MSPs Need Freemium Strategies for 2011?
Freemium isn’t a new concept: Get customers hooked on something free, then provide something of high value that triggers customers to switch from free to paid services. It sounds so easy. But plenty of freemium strategies implode. Still, some MSP software providers have freemium offers for channel partners. My question: Should MSPs emulate the freemium strategy with end-customers — and if so, how?
The seeds for this blog entry were planted earlier this week, when Naverisk — a New Zealand-based MSP software provider — disclosed plans for a U.S. push, which includes a freemium effort. And for the past 14 months or so, N-able Technologies has been promoting freemium endpoint security. Meanwhile, some RMM (remote monitoring and management) software companies are giving first-time customers free Autotask Go subscriptions (a limited-time offer). I’ve called that a freemium approach, but critics tell me otherwise.
Creative Steps Toward Market Growth
Either way the trend is clear: MSP software companies are working very hard to lower the barrier to entry for VARs and MSPs. Will channel partners, in turn, take similar steps with their end customers?
About a year ago, I recall MSP coach Stuart Selbst suggesting that MSPs may someday give away remote monitoring services to their end customers. At the time I thought Selbst was crazy. Now, I’m rethinking my stance.
In some cases some MSP services really are free. For instance, I hear from numerous MSPs that offer free VIP and free concierge services to CEOs who have home IT needs. You know: Your most prized customer has a spouse and kids with about a dozen IP endpoints in the house — iPads, notebooks, PCs, printers. Manage that at-home stuff for free, and you’ll keep that CEO’s business forever, or so the theory goes. Not exactly a freemium strategy but it can help to pay the bills.
What else will go free? I’m not sure. I can’t imagine patch management remaining a paid standalone service for too muich longer — especially as SaaS applications begin to replace on-premise servers. Also, as more and more small business owners use iPads and other specialize devices, they’ll expect a well-patched system to just be part of day-to-day business.
Either way, MSPs would be wise to check out a Freemium Guide written by 16 Ventures, which helps SaaS companies develop their recurring revenue strategies. The guide highlights five freemium business models. I wonder if any of those models apply to your business.
I’m certainly not suggesting that you give away your high-value services. But the idea of getting your foot in the door with some sort of freemium offer has caught on with numerous MSP software providers. We’ll be watching to see if MSPs adopt similar strategies when dealing with end-customers.
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Joe,
Information is valuable. Access and use of information is even more valuable. Freemium RMM’s (or low cost variations) will be all the rage in 2011.
If you can see an end-customers network, devices and all sorts of other stuff, you can then devise strategies to improve performance and sell more stuff. I think we will see a resurgence of the old “Network Assessment” in a form that leverages today’s technology. In my mind, a logical next step in the managed services model.
Oh, and to your point, commoditization on some segments of the MSP portfolio are already underway…good luck to all!
Enjoy,
Gerard
Joe,
Thanks for the shout out, I am glad that you don’t think I am crazy any longer. Wait till I tell you my next crazy thought.
I still think and continue to preach the “freemium” is a great strategy. Reason being, it isn’t the commodity, but the people or company behind the commodity. That goes for vendors and in this case the MSPs themselves. Remote monitoring is a commodity and at this time why not give it away and charge a full billable rate for everything else. Just my $.02.
Thanks again for all you do and have the happiest of holiday seasons.
Stu
Stuart Selbst Consulting
http://www.stuartselbst.com
Gerard, Stu: The trick is balancing free vs. the premium offer (free + premium = freemium). N-able, for one, used the free strategy to give MSPs some basic endpoint discovery capabilities. But I believe the vast majority of those MSPs went to the premium version.
On the flip side: Get the free + premium formula wrong and you could wind up cannibalizing your revenue streams on accident…
-jp
Sorry guys but I have to say that I completely disagree with this whole “freemium” concept for MSPs.
Just because the RMM vendors are doing it does not mean MSPs should do it. These are two completely different business models, selling to completely different customers, with a completely different value proposition.
Somehow resellers / vars and msps in our industry have gotten themselves into what I call a “race to the bottom”. The bottom is zero profitability or worse running in the red.
Unfortunately I think that this desire to discount or worse yet offer something for free is due to several problems within the MSPs:
1. Lack of a solid / proven sales process.
2. Lack of confidence?
3. Lack of a solid marketing program (i.e. not enough leads).
4. Not having a dedicated sales force.
5. …
There is a lot of talk that remote monitoring is a commodity. I do agree with this statement in general though I don’t agree with offering this as a service to begin with. Unless you are selling to an IT department a remote monitoring only (with no remediation) service is completely useless to a business owner.
If you feel the need to install a monitoring tool at the customer site as part of your pre-sales process then go ahead and do that for 30 days but don’t call it a service. Call it part of your pre-sales process that you use to determine exactly what the customer needs. Better yet, offer a high level assessment for free and then if they need more detail charge them for it.
Joe you mention that patch management is going to become a commodity. There is nothing free about patch management. On desktops you have to pay for anything that is centrally managed (outside of WSUS which is not easy to manage) and for servers even with all the tools out there this is a very manual process.
Let’s be honest with ourselves here, there is nothing free. Everything an MSP provides to its customers has a cost associated with it. Either the MSP makes up for it by overpricing another service or they just eat the cost and lose money.
Lane Smith
Do IT Smarter
Lane: I love a healthy debate… especially when the viewpoint comes in from a long-established Master MSP.
Short term I do worry about the so-called Race to the Bottom. But those who run in the red will leave the business, and prices will stabilize.
I appreciate your point about patch management.
But I guess my counter-point is this: Small businesses that grow up on Macs, iPads and SaaS would never, ever think about paying for patch management. Patch management is a Windows-centric mentality. That market will be around for quite some time since Windows still has 90% market share. But small business owners who grow up outside of the Windows world would never think about paying for such a service. And I suspect there’s a growing number of those small business owners out there.
Still, I concede: My opinions are based on what I hear and see. But your opinions are based on real-world experiences running a Master MSP. The net-net: I take the constructive criticism/your differing viewpoint seriously.
Thanks for the healthy debate, Lane.
-jp
Lane, Well said.
What truly does worry me are MSPs that have all but given up on growing their business because they’ve tried hiring the sales rep and that failed, tried the lead gen program du jour and that failed, tried reading the how-to book and that failed. Now we hear of “freemiums” and that is supposed to fix the problem. Sales and marketing 101 will never ever go away. It’s a learned process…your solid value prop, your selected target mkts, your closed-loop lead gen programs, your activities based sales people, incredibly stringent and informative mgt metrics, etc etc etc.
Again this does worry me because it helps accelerate the race to the bottom where noone wins.
best and Happy Holidays,
Todd Hussey
http://www.mspexcellence.com
Todd: I know there’s concern about a race to the bottom. But freemium is real. And it’s not to be confused with purely free. Strike the right balancing act between free and premium and you can make a boatload of money.
Freemium tips from SiliconValleyWatcher: here.
-jp
Joe,
I have lots of views on this which if I get the time I will try to compose in the next day or so, but here’s some high-level thoughts: the freemium model is a great model if done intelligently. One of the great privileges of being a part of the Sillicon Valley community as an entrepreneur, advisor and investor is that I get to see behind the curtain on a lot of companies. In the past couple of years, I’ve seen the numbers and conversion rates of many SV companies that are using freemium models to great effect and it’s staggering how successful it can be in Enterprise and SMB. Take a look at Yammer, SocialCast, DropBox, SurveyMonkey, etc. A company I’m joining the advisory board of in the cloud space just launched it’s freemium model and it seeing double-digit conversion rates with very low marketing and sales costs. And, Let’s not forget that one of the most successful IPOs in recent history – Solarwinds – leveraged the freemium model to great effect.
The key is balance. Don’t give so little away that no one wants to use your service/platform/software, and don’t give so much away that no one feels the need to pay for the premium version. A simple statement, but an art and science to master. When companies give too much away (and there are lots of examples of this – even in the MSP space) there’s no incentive to purchase the premium version and once you’ve given too much away, especially if you’ve open-sourced it, you’re going to struggle to ever build a profitable business of any size. I have never been a fan of the business model of selling support to a free solution as the justification for the “premium” product/service. That can, of course, be an element, but there must be something in the solution itself that offers significant value-add over the free version – enhanced functionality, improved performance, increased users, etc. People already struggle with understanding the soft costs associated with managing technology solutions, especially if they are in the technology sector and are able to administer technically complicated solutions, so you will always get a relatively low conversion rate if you just sell service and support. I think the freemium version needs to solve some fundamental pain-point that offers real value-add to the individual or company consuming the product where the natural extension of the free version in terms of functionality, performance or users is the premium version. This, of course, is all from the Vendor perspective. I think Lane makes some good points as it relates to the challenge of how MSPs can leverage the freemium model.
By it’s very nature, the MSP business requires human interaction, establishing trust and offering a service that involves man hours (billed for, or not, humans are doing much of the work). It’s a relationship-based business and cannot be downloaded, tried and then converted. But, perhaps if you step back and think outside the box, there are things MSPs can do. One way that end-point security vendors have leveraged freemium is that the free versions tell you whether there’s anything wrong with your device and then they offer to sell you the premium version to fix it. Another tactic they’ve used is to fix some limited number of viruses/malware, or fix them for some limited amount of time and then upsell the premium version for anything beyond that. Some of our partners have offered free data protection audits, or free network audits to customers with great effect (which are, in fact, of real value and do have costs associated with them) as a “freemium” tool. I’d imagine there are other similar things that can be done with MSP offerings.
Just my $.02….
Justin
Axcient
Justin: Thanks for organizing your thoughts. Keep me posted as you plan 2011 travel.
Readers: Read Justin’s third paragraph closely for freemium tips on endpoint security, audits, etc.
-jp
Justin I agree with you from a vendor perspective as well as your statement “the MSP business requires human interaction,”. I think that this is the key here. There seems to be this misconception that the RMM vendors have the same business model as MSPs so their sales tactics should work for MSPs too.