This is a great breakdown of the different markets that exist. I think it can even help in calculating "back of the envelope" numbers, because you know you need to, "drop some zeros" a lot of the time. Pricing is kinda glossed over. But isn't Freemuim disrupting some of the 'Age old formulas'?
Giving it away for free is a usually recurring/ongoing loss incurred to increase addressable market.
In addition, people that get things for free tend to be more potentially critical of those things.
That means that to increase addressable market and increase potential for sales, you are increasing the amount of critical feedback and response.
As the OP said, you must be focused on customer service, and it is even more true with Freemium; however, at the same time, you have to provide a substantial carrot that the rabbit actually wants to get conversion to happen. For example, I probably wouldn't have started paying for Pandora if all of the following weren't true:
(1) For free or by paying, I knew they had music I liked and would play a variety for not much effort on my part but I was still able to control it; basically I was pleased with the product.
(2) By paying, I didn't have to listen to commercials.
(3) By paying, I could hear a substantial difference in sound quality, but the free sound quality was good enough- it just wasn't as great as the paid version I heard at a neighbor's house.
The biggest point this is missing - the cost of acquisition. If you sell your product to 0.1% of China, you'll have tonnes of revenue. If you have to send salesmen out to knock on half a billion doors to get that 0.1% to buy, your profits won't be so hot.
Or, you could buy adwords. You can try a "viral" strategy, which magnifies your acquisition (by a factor you can calculate - if 90% of your customers can sell to a friend, you get 1/(1-0.9) = 10X the acquisitions you'd get without the viral strategy), but it's not a holy grail unless every customer brings in more than 1 friend. Guess how often that happens?
Good point. I left this out as I wanted to do a separate post on the importance of profitably acquiring customers for start-ups, but there's a big overlap here with the dangers of hitting large markets that I should have included it.
> but it's not a holy grail unless every customer brings in more than 1 friend.
Only one customer in ten has to bring in more than one friend for you to see exponential growth. While I don't disagree with you, that's kind of the idea behind most Internet startups.
I dunno.. I hate marketing as much as the next engineer, but just because a customer is happy doesn't mean they will bring you as many new customers that a good marketing strategy will. They could be happy and never come back.
The only thing I disagree with is the limiting mindset of who your addressable market is... A better formula would be deciding who you WANT your addressable market to be, and finding a way to reach them.
For example, a local cafe might appear to be limited by geography, but could just as easily build a reputation beyond their borders and become the Omaha Steaks of Coffee.
I think you subtly made the point that things like making your product and experience remarkable, will expand your addressable market, but I think it is important for businesses and startups to realize that "Their Market" could be by design, and doesn't have to limited to the apparent cards they were dealt.
In fact, any marketer worth their salt should be able to find any consumer or target market no matter how big or small, no matter where they are and no matter the barriers and limitations and find a way to engage them.
I too prefer this way of thinking. It is the kind of thinking that leads to coffee 'trucks' rather than coffee 'shops'. As in "Hey my potential customers are all over the city, but not all at the same time ..."
It's called market segmentation and is fundamental to most businesses. I say most businesses, because there are always cases of businesses that succeed because of dumb luck or just being in the right place at the right time.
The statement "Happy customers beat the crap out of any marketing team you could hire" is pretty ridiculous because it downplays the importance of great marketing, without which, most products will get ignored.
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[ 3.9 ms ] story [ 41.4 ms ] threadGiving it away for free is a usually recurring/ongoing loss incurred to increase addressable market.
In addition, people that get things for free tend to be more potentially critical of those things.
That means that to increase addressable market and increase potential for sales, you are increasing the amount of critical feedback and response.
As the OP said, you must be focused on customer service, and it is even more true with Freemium; however, at the same time, you have to provide a substantial carrot that the rabbit actually wants to get conversion to happen. For example, I probably wouldn't have started paying for Pandora if all of the following weren't true:
(1) For free or by paying, I knew they had music I liked and would play a variety for not much effort on my part but I was still able to control it; basically I was pleased with the product.
(2) By paying, I didn't have to listen to commercials.
(3) By paying, I could hear a substantial difference in sound quality, but the free sound quality was good enough- it just wasn't as great as the paid version I heard at a neighbor's house.
Or, you could buy adwords. You can try a "viral" strategy, which magnifies your acquisition (by a factor you can calculate - if 90% of your customers can sell to a friend, you get 1/(1-0.9) = 10X the acquisitions you'd get without the viral strategy), but it's not a holy grail unless every customer brings in more than 1 friend. Guess how often that happens?
Good point. I left this out as I wanted to do a separate post on the importance of profitably acquiring customers for start-ups, but there's a big overlap here with the dangers of hitting large markets that I should have included it.
Cheers, Des
Only one customer in ten has to bring in more than one friend for you to see exponential growth. While I don't disagree with you, that's kind of the idea behind most Internet startups.
You should beat the crap out of your marketing team if they aren't bringing you happy customers.
For example, a local cafe might appear to be limited by geography, but could just as easily build a reputation beyond their borders and become the Omaha Steaks of Coffee.
I think you subtly made the point that things like making your product and experience remarkable, will expand your addressable market, but I think it is important for businesses and startups to realize that "Their Market" could be by design, and doesn't have to limited to the apparent cards they were dealt.
In fact, any marketer worth their salt should be able to find any consumer or target market no matter how big or small, no matter where they are and no matter the barriers and limitations and find a way to engage them.
The statement "Happy customers beat the crap out of any marketing team you could hire" is pretty ridiculous because it downplays the importance of great marketing, without which, most products will get ignored.