Freemium is not just for small startups, and small startups are choosing a different approach to Freemium.
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I want to bring you up to speed on some interesting developments regarding Freemium in B2B SaaS. Salesforce.com said they are going to announce at their Dreamforce conference next week a free version of Chatter. If you aren't familiar, Chatter is a SaaS product for businesses small and large to use for internal communication - almost an internal Twitter.
Fast-forward to earlier this week when Yammer, the non-Classical Freemium startup who claims 80% penetration in Fortune 500 companies and ALSO a provider of a SaaS product for private Twitter-like communication within organizations - announced it landed another funding round. This latest round of $25 Million brings their total external investment to $40 Million.
It seems interesting that Yammer gets more funding and Salesforce spins out a free version of Chatter so close together. Here are links to a different accounts of the announcements.
So, why is this significant? Well, first of all, Salesforce.com is clearly not a "startup with nothing to lose," yet they are embracing Freemium (not Classical) as a marketing strategy to disrupt competitors. Whether the free version of Chatter is a swipe at Yammer is not clear. The only competitors Salesforce.com CEO Mark Benioff mentioned by name were Lotus and Microsoft SharePoint, though that in itself could be a swipe at Yammer. Salesforce.com could see Yammer as a threat or perhaps they just thought they'd let them spend their money on market validation - we might never know, but the timing is interesting.
Whatever the motivation, this move by Salesforce.com is intriguing. Aside from potentially crushing competitors like Yammer, a free version of Chatter provides a great foot in the door for Salesforce.com to ultimately monetize via their core products. If you haven't spotted it yet, Salesforce.com's free Chatter is the "alternative product strategy" for Freemium I talked about way back in "The Reality of Freemium in SaaS".
The key takeaway from this for those embracing Freemium as their go-to-market strategy is that Free or Freemium is not the sustainable competitive advantage you think it is. If you are thinking that those old, stodgy, Billion dollar public companies won't do Freemium because they're not cool, hip, agile like you.... SQUASH - they just did!
If you haven't already, please join our mailing list so you can download and read "Freemium isn't just for 'startups with nothing to lose'" - it is 5 pages in a PDF that could change your entire view on Freemium in B2B SaaS. If you already have it, go back and read it with the context of these two announcements
Yammer is very interesting as they leverage a different type of Freemium where the product itself doesn't change from a usability standpoint when moving from Free to Premium. Rather, Yammer monetizes control - a huge shift in the Freemium concept, by the way. The feature limitations are mostly on the back-end where the users are not affected. This means high-levels of front-end viral growth in user adoption are achievable, but back-end monetization (the actual Customer Acquisition) takes Yammer directly to enemy #1 of SaaS - the IT department. They have a tough row to hoe, for sure, but it is an interesting use of Freemium.
For the record, I like Yammer's use of Freemium in B2B SaaS - it is not "Classical Freemium" though and the extra $25 Million shows its not cheap, either. It would seem that is due to the sales model behind Yammer not being as efficient and scalable as the user acquisition model out front. I've heard anecdotally from some large companies that I work with who use Yammer internally that their sales team has had difficulties closing sales against SharePoint, even when they have 2000+ internal users on the platform. I suspect that Yammer will begin to refine their sales process to make it more efficient at scale, with the free version of Chatter providing even more incentive to get that process right. No matter what, it should be interesting to watch how this all plays out.
A word of caution if you are thinking that the Yammer model of Freemium is for you. It might be - monetizing control, security, data ownership, privacy, etc. are valid revenue models - but you should probably learn as much about Yammer as possible before you copy their use of Freemium. Of course, that is AFTER fully understanding your goals, market, etc., right? Especially for something like Yammer, you must clearly understand the sales process in use - it is a mix of something new and consumer-oriented like Freemium on the front end with traditional Enterprise sales on the back end.
I will cover the Yammer model in more detail in one of the next Freemium updates for the mailing list members where I talk about the 5 different Freemium types found in B2B SaaS. Understanding that there isn't just one type of Freemium, looking for the real motivation behind its use, & how to employ different Freemium strategies both short- & long-term are important.
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