I read an interesting blog post by Ruben Gamez titled Why Free Plans Don’t Work. If you are interested in freemium business models or any of the variations on the theme, this is well worth reading however I take issue with a couple of points.

First and foremost, Gamez uses a statistics breakdown (in %) to highlight the disparity between free and paid plans. Whenever someone does this they invariably open the door to the question about what their customer numbers because a percentage breakdown without knowing what the denominator is will lack the proper context. Knowing that 1% out of 100 customers are paid versus 1% out of 100,000 is a fundamentally different discussion to have… and there is no discussion about the cost to serve free product customers.

Gamez points out a number of well known freemium companies and the transitions that they have made between free products and free trials. This is an interesting discussion and the body of work that can be studied is relatively small and fluid given the immaturity of freemium as a business model. However, a couple of things are increasingly apparent for people who are running these businesses.

You can have a freemium business that depends on a free trial process instead of a free trial and a free product option at signup, there is no debate about this, and you can have an exclusively paid product that depends on a free trial process for acquisition and onboarding. This is a smart decision in my opinion and at Get Satisfaction we are constantly tinkering with and evaluating the options relative to placement and purchase path for the free product. The idea here is to route every website visitor who becomes a prospect into a funnel that exposes them to the full product before downgrading them to a free product.

In 2010 we relaunched our website with a new “plan picker” page, which over the course of the year went through 2 significant updates that are very relavent to this analysis. Initially we had Free placed as a promo box on the sidebar, separate from the monthly subscription plans but highly visible nonetheless… this is the control group as best I can provide one because with each subsequent change to the plan picker page we changed more than just Free product placement.

In April of this year we elevated placement of the Free product to equal standing with the monthly subscription plans. Almost immediately the number of new communities created through the free product jumped substantially (and for the record, I am not going to disclose actual customer numbers so I’ll do my best to avoid putting up percentages, following my own advice above). At the same time the number of new trials created for our monthly subscription products remained flat and in some months declined materially, however the number of free-to-paid conversions for customers who were net new (not a previously paying customer who canceled) went up.

The net result was still a decline in new customer conversions and our churn rate (turnover of all paying customers in a single billing period) stayed constant or declined slightly so I would have to say that elevating Free to first world status did not improve the business.

In August we changed the plan page again and pretty much hid the Free product option. The resulting decline in Free product signups was dramatic but offset by the trial signups and associated trial conversion rate, however churn went up as well so the net effect was offset by customer cancelations in the first 90 of total life.

Churn is a really important consideration in freemium models and not just because of the financial impact. The raw churn number is obviously important because that represents the size of the hole you need to fill each month before you can start adding customers, however when churn happens is often overlooked.

You should be doing a cohort analysis each month on cancelations to determine what the survival curve is for each customer segment, which graphically represents how quickly cancelations are happening in the customer lifecycle as represented by the 25th, 50th, and 75th percentile groups.

This first example is basically a bad curve because it shows that over a proscribed period of time a large percentage of your customers fall off. It’s basically telling you that you are attracting the wrong kind of customers and you are going to invest disproportionately in replacing lost customers.

This next curve is a pretty good one, the drop is initially steep but then levels out and after 12 months you still have over half of the customers you acquired in any single cohort. What this curve is telling you is that you are losing customers who are not a good fit for you very quickly and then cancelations stabilize.

In the context of freemium this information is very valuable because it is a consequence of how prominently you are positioning free vs paid product options. If you are hiding free in order to stimulate take-up rates on paid, then you have to expect that cancelations rates will go up as a result of people converting to paid that otherwise would not if presented with a prominent free option.

This leads to the next topic I want to discuss, which is the methodology you embrace for the trial process. In the interest of being honest and transparent, the way we do it at Get Satisfaction is not the optimal way to do trials because we provision trials as a time based variant of a specific product instead of having a single trial where everything is turned on and then have the prospect select the product they want to convert into at the end of the trial process.

The second problem we created for ourselves is that we require the web visitor to create an account and give us their credit card information in order to create a trial account. This is an obstacle for trial creation first and foremost but also orients the trial experience to people who are pre-disposed to buying you before they even enter the trial process… so in effect you are giving them a free period of service for something they would pay for.

We are going to make changes to the trial process to address the two issues I raise, however I can’t do much about the account creation requirement simply because my product requires a named user to be the administrator of it… no user registration would mean I would have no account to attach the administrator rights to. My recommendation to you is that you create a free trial process that downgrades to a free product at the end of the trial period if someone doesn’t enter their credit card details and select a plan, instead of offering a trial experience in addition to a free product.

Annual billing options are a game changer in the freemium model, arguably the single most effective strategy for reducing your churn rate. Typically the way that annual billing is presented is 12 months of service for the price of 10, a 16% discount.

You can also use a buy-it-now option to bypass the trial process, offering something like a discount or promotional offering in order to pull forward demand that exists in the trial pipeline, and in the process isolating true prospects who are won or lost in the trial. I’d like to do this at Get Satisfaction as part of our structural changes to the trial process.

Having a freemium business model is dependent on a number of strategies but one that often gets overlooked is how well you identify potential demand and feature marketing inside the free product for free to paid conversion and inside the various monthly subscription products for paid-to-higher-paid conversion.

Ultimately the freemium model is a strategy that increases the catchment of leads as a result of using your product as the primary marketing vehicle through which you deliver a funnel to. Take care to structure your website so that every aspect of the content you are creating is designed to deliver a site visitor into a product experience or isolate them for followup through a traditional enterprise sales process.

It’s also worth pointing out that if you have a product that you are primarily selling to businesses, and the product itself has a multistep onboarding process, then you really have to have a higher touch sales process where you are nurturing the free and trial accounts at a higher level than if you were, for example, Evernote.

For me the mechanics of a freemium business are some of the most interesting to be involved with in a modern software as a service company. The implications of billing and provisioning system dynamics, how you structure your website content, surface funnel analytics, build upselling cues into your application, and manage high volume sales nurturing processes are incredibly complex but increasingly normal for the B2C and even B2B markets.

I just had a great conversation with a friend that covered, among many things, email marketing and how broken it really is. Then I come home and open up my email, finding this.

Email marketing is so fundamentally broken that it defies the imagination. Single digit response rates are considered a great success and not pissing off your market is a good day. Companies in all market segments turn to email marketing knowing full well it is not an optimal solution, meanwhile email service providers and software companies actively develop solutions that defeat email marketing. Users have been conditioned to avoid “unsubscribe” links because they serve primarily to validate email addresses purchased from lists, while legitimate unsubscribe links often do not work or take up to 30 days to remove you from a list that took a nanosecond to add you to.

Obviously the biggest problem with email marketing is the lack of effective targeting technology. Current generation solutions use blunt force instruments for targeting and the result is that prospects are rarely matched with information and offers that appeal to them. This also explains why the takeup rate is so low.

There simply has to be a better way to do this, whether it be tapping into activity streams and feeds, affiliate arrangements, or location based services. Something… anything has to be better than what we have today.

Early last year Rochester, NY based Techrigy launched SM2. Dubbed a social media monitoring service, SM2 is representative of a growing class of services that are going beyond Google Alert type filters to a comprehensive monitoring solution that aggregates content from a virtually unlimited number of network sources.

As an aside, Google News Alerts has really gone to shit in recent months to the point that it can’t be relied on for serious monitoring requirements, there is simply too much noise in the alerts and no ability to fine tune outside of keyword selection. This is opening up a whole new category of services for startups and existing vendors to fill… which is not to suggest that Google News Alerts created the market but rather the visibility they provided is a boost for everyone else.

What is interesting about SM2 is the underlying social media warehouse, which currently houses 1.2 billion conversation records from multiple sources along with approximately 35 pieces of metadata attached to each conversation. The ability to aggregate conversation data and then extend it with proprietary metadata is what makes it valuable.

The fact that Techrigy is collecting data from multiple sources is not special, although this is not to suggest it is easy. APIs and RSS feeds are broadly available that enable applications to harvest user generated content from social networks off all kinds and whatever is left over can be scraped as a worst case method. Gnip is an example of a data service that is built around the premise of aggregating social network data and wholesaling it. Again I come back to the data extensions, like profile and sentiment analysis, being the key ingredient for turning data into information that can be acted on.

SM2 is not a database of information, it is a brand monitoring solution with a workflow driven user interface that takes a keyword filtering approach for identifying actionable content and then running through a workflow approach for prioritizing high yield tasks for attention. The number of reports and dashboards is a little overwhelming at first, but it’s laid out in a way that makes everything very navigable, which flattens out the learning curve. There are even a few nice extras, like the ability to monitor wikipedia pages, that makes SM2 nicely rounded out.

I’ve looked at a lot of analytics solutions over the years and the point about a workflow is really important because that is the component that takes information and turns it into action. People don’t need more information, they need targeted information that they can act on and measure the results.

There are many social media monitoring applications that have emerged in recent years, which is no surprise given the attention that brands are putting on social media channels. I’m starting to see some targeting of these services to specific segments of the market, and SM2 is no exception here being targeted to PR agencies versus Radian6, which is more aligned to the needs to an advertising agency.

SM2 is available on a month-to-month subscription basis (several plans are available) and from what I saw it appears that you can get up and running in a matter of hours.

An open question remains regarding overall performance and latency of data (how much time elapses from publishing to notification) but from what I saw it appears that SM2 is a good solution for PR agencies and in house groups that are monitoring a wide range of content sources and attempting to engage a subset of conversations.

When I saw this yesterday I was a little flabbergasted, it’s almost shameful that Pepsi would pander in this manner but it’s also really risky.

When you insert politics into business and take a side, you end up alienating half of your potential market. This is self-evident and Pepsi may have calculated that given the blue state reach of their business that this is a calculated risk but they would be wise to look at what happened to Oprah and her ratings over the last year.

The show has been drifting back to Earth, losing 7 percent of its audience nationwide this year alone. O Magazine saw a double-digit decline in circulation. Authors can no longer count on the “Oprah effect.” And her endorsement of Barack Obama may have turned off, literally, viewers who supported Hillary Clinton.

Given the fragile state of the economy I would speculate that Pepsi doesn’t need to be doing anything that really only has the potential to hurt them. As a shareholder I would prefer that they stick to making sugary drinks and salty snacks. Pepsi is a well run company, there is no need to stumble now with a speculate brand marketing initiative.

On a related note, I couldn’t help but notice that Pepsi is not taking a similarly progressive attitude toward the NY state tax on soda.

At any rate this is unlikely to affect my purchasing decisions one way or the other, I’m a Dr. Pepper drinker myself (Dublin Dr. Pepper, the Texas bottler that refused to convert to high fructose corn syrup).

A few weeks ago I received an email from the founder of a company that makes little earbud covers, call Breppies. While it is not uncommon to get emails about products and companies, this one stood out for two reasons.

First and foremost, the email from Dean Romero was thoughtful and reflected that fact that the guy actually reads what I write. He laid out his dilemma for marketing his product, which is that not having a substantial advertising budget how does one get started with word of mouth marketing. It’s not just about the theory behind word of mouth marketing but rather the tactical 1-2-3 steps for getting the ball rolling.

This is a tough question to answer because like a lot of things in business the theory is relatively straightforward while the actual execution is frustratingly difficult. I mean if Gladwell’s Tipping Point were really that obvious then everyone would be doing it and doing it successfully but the fact remains that they are not.

The second reason his email stood out is that just that day I became really frustrated with my iphone earbuds. I’m not a bluetooth headset guy, I simply don’t like them and outside of my integrated bluetooth in the car I don’t use it. I do, however, like the plain ‘ol ipod headphones which aside from a nasty habit of tangling up work really well. One big problem, once the small rubber gasket around the perimeter of the earbud wears off they simply won’t stay in your ear and Apple wants $29 for a replacement set, which I think is robbery. My interest in Breppies was growing.

Dean sent me a couple of pairs and I gave one set to my wife and took the other for myself. In a sentence, these things work. A little challenging to get on but once they are installed your old headphones feel better than new.

These are a great product with a classic dilemma, how to build channel support and market awareness. I’m doing my part by writing an endorsement of this product, if you email me I’ll give you his email address to follow up with him directly. You can also click on this link to get a free product sample.

Chrysler has a blog and on it they posted a digital copy of that stupid “thank you America” ad they spent $100k of your money running. The comments on the post speak convincingly about the depth of anger felt by the vast majority, probably 98%, of people on this subject as evidenced by what they are posting.

“Hey Crysler! You’re not welcome. You took my hard earned tax dollars without congressional approval. This is not the time for a “thank you.” This would be a good time for a refund…and an apology. “

“Bob Nardelli – thanking Americans for stealing their money is NOT something to boast about on your website.”

“Obviously nothing has changed. Chrysler is still making stupid decisions by wasting its stolen taxpayer money on useless ads.”

GM’s Fastlane blog has a similar statement about the bridge loans but the comments are markedly more measured. I think this reflects a couple of factors, the first being that Fastlane is much more respected in the automotive world as a blog about cars on GM’s site, whereas the Chrysler blog is simply a marketing exercise. The distinction is subtle because technically both are marketing tools but the Fastlane blog has substance that is conspicuously lacking in the Chrysler blog.

The second factor is likely the anger about the ad that Chrysler ran, which show further tone deafness about the displeasure that the American public feels about these bailouts. Chrysler also has two other problems, Cerberus and Bob Nardelli. The former being a private equity firm represents to many people a symbol for why our global economy is in the shitter to begin with, and the latter is a reviled man in many corners for his outrageous severance package at Home Depot and also because he’s not a “car guy” so he is viewed as an interloper.

Chrysler would do well to shut down the blog at this point. There is no way the comments will turn positive and because they can’t whitewash them away, the comments only serve to reinforce the negativity surrounding this company.

Found on Flickr.

If you look at what is going on in our global financial markets and many large business sectors (airlines and auto manufacturers in particular) the disease they are suffering from is a lack of trust among consumers.

The financial markets have witnessed wholesale capitulation by retail investors who understand that the market is functioning not on the basis of fundamental business strength and weakness, but at the mercy of large fund traders who are capable of moving any large stock 10% up or down on any given day irrespective of what the circumstances surrounding that business are. The retail investor sees these bear raids and bull runs are for what they are, insider dominated trading.

Volatility increases as the number of participants in a market decreases. Retail investors are sitting this out and the SEC and Congress are not helping, on one side is the SEC which has done little to create level playing fields in markets and Congress has distorted the markets with trillions of dollars of your money being committed to companies and industries that should not be getting free money. Insiders have polluted and corrupted every one of the bills that deal with economic stabilization, the latest outrage being provisions inserted into the auto failout bill that would provide a pay raise to federal judges and a provision that would let transit agencies off the hook for illegal SILO tax shelter tansactions.

On the business side, industries like American auto manufactures and airlines have done everything within their reach to tarnish their brands over the last 20 years and irrespective of whatever financial propping up they receive from Congress, the fact remains that their biggest obstacle to success over the long run are not credit markets or labor costs, it’s a lack of trust among consumers.

American cars and trucks are without a doubt competitive on quality benchmarks, every customer satisfaction and quality survey reveals this fact. Having had a wide range of these vehicles myself, I have no complaints about GM and Ford quality, in fact the GMC Denali that we owned at one point did not have a single issue that required service, beyond regular maintenance, and it was one of the best equipped and most comfortable vehicles we have ever owned.

If you look at the model lineup GM and Ford in particular you will see a strong portfolio of high mileage vehicles. Chevrolet offers 88 models (yeah that’s somewhat of a problem in itself) with an average fuel economy across the entire portfolio of 23mpg, while Toyota’s 55 models comes in at 21mpg. GM’s efforts on Flex-fuel (E85) have led the industry, 6% of their volume is now Flex-fuel vehicles (hybrids are 2% of Toyota’s shipments). GM alone has invested $750 million in development of the Volt, advancing state of the art not only in powertrain technology but also in battery technology.

What are the two biggest complaints that critics throw up on GM and Ford? They make crappy cars and the have not invested in fuel efficient cars and low emissions technology.

Even if GM survives (Ford is not in as bad a crisis and Chrysler simply won’t survive) the bigger challenge they face is that consumers don’t value their brand anymore. The same applies to the big airlines, while Southwest and JetBlue were cultivating their respective brands, UAL and Delta were doing just the opposite. Running new advertising, remaking the corporate logo, and self-flagellation among executives won’t change any of this.

Congress is in no better condition either, the public not only gives this Congress historically low approval ratings, they also have little confidence that Congress will be a constructive player in our current economic downturn.

Let’s see… why aren’t advertisers using widgets more often? Hmmm, maybe because advertisers are still largely defined by a display ad mentality that hinges on their ability to get consumers to click on a banner in response to cute creative or simply tricking them.

Until they go digital. Branded widgets are the refrigerator magnets of the Brave New World. These compact, portable little software apps — from video players to countdown clocks to makeup simulators — are inexpensive to distribute, free to the user and (often enough) distinctly useful. At a minimum, they carry an ad message wherever they go.

[From Garfield: Why Aren't More Advertisers Using Widgets? - Advertising Age - News]

Widgets do offer a substantial upping of the ante for advertisers but a few things are lacking. First and foremost, while widgets use script blocks to deliver the hosted widget, there are still far too many inconsistencies with the way that the 40+ destination sites handle widgets.

HTML widgets offer far simpler authoring and more reliable playback, but many social networks only want Flash widgets. Google, on the other hand, would prefer to have as little Flash as possible. Then there is the size issue and the fact that widgets that are not well behaved will cause a number of browser issues on page load.

The ability to track and report on widget traffic is quite erratic from one network to another and instrumentation of widgets can impose network and service overhead that causes problems all it’s own.

The biggest problem for advertisers is that while widgets are free for users, they aren’t free for advertisers and publishers who have to pay directly and indirectly to support them. With the vast majority of widget traffic going into social networks the CPM is atrocious and advertising networks want little to do with them because they don’t like, despite their assertions to the contrary, the long tail. Advertisers want to know where their ads, or in this case widgets, are residing because they believe, rightly I would offer, that their brand integrity demands it.

Despite all that, I love widgets and believe that they offer many compelling advantages over display ads, we just have to get beyond an advertising culture issue to hit mainstream with them. It’s kind of like behavioral and micro-targeting, every advertiser and advertising network says these are definitely the future, but very few actually ever explore using these techniques.

This is actually a really fascinating topic and an insightful article.

Click here to download the PDF.

“Today’s housing bubble and the tech stock bubble from the last decade reveal a widening gap between market speculation and how typical Americans value things.

If you thought those bubbles were bad, get ready for another, even bigger one on the horizon that represents over $4 trillion dollars in S&P market capitalization. That alone makes it twice the size of the sub-prime mortgage market. But, unlike other bubbles, the assets that are at risk cannot be traded away or hedged against uncertainty. Rather, they are the fundamental drivers of competitive advantage for most companies–their brands.” [From 52.01 - The Brand Bubble: How Business Speculation in the Consumer Marketplace Threatens Our Economy by John Gerzema]