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Enterprise software vendors go freemium: It's all about the long tail

IBM, Cisco and others are launching new apps under a freemium model. Will Millennials see these enterprise giants as go-to vendors in the future?

IBM and Cisco in recent weeks have launched freemium apps that are about staying relevant to the next generation of customers as much as keeping existing ones.

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For an enterprise technology industry that has revolved around licensing and maintenance revenue and lock-in in exchange for one throat to choke, the move to freemium models is curious. Nevertheless, consider the following:

  • In September, IBM launched Watson Analytics as a freemium cloud application available through browsers.
  • On Tuesday, IBM outlined its plan to reinvent email and launched Verse . That application is also free for individuals. Executives talked a lot about the next generation of workers at an event in New York. 
  • Cisco's Project Squared app is free to try. The app, which is built on Cisco's collaboration cloud, pulls together various applications into one experience.
  • Salesforce's Wave analytics cloud launched as an app that was preloaded with data so potential customers could take it for a free spin.

For the next generation of enterprise vendors, the freemium model isn't all that new. Free trials abound on the Amazon Web Services Marketplace before hourly charges kick in. Just the idea of provisioning software by the hour is notable.

But for the large enterprise software vendors, the freemium model isn't necessarily about money. Many of these large vendors aren't in danger of losing customers. For instance, large enterprises on IBM Connections are likely to move to Verse. Sure, these global companies may shop around, but email isn't strategic enough to warrant a huge project.

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So why do freemium beyond the cool factor? Here are a few thoughts:

  • Relevance. For many enterprise vendors, it's an open question as to whether they can deploy design thinking well, cover mobile and provide a good experience. After all, many of these vendors have been used to shoveling out take-it-or-leave-it user interfaces for ages. A freemium model enables more downloads and allows these vendors to show they've turned the social, mobile, analytics and cloud curve.
  • Branding. Millennials are likely to have little to no idea what IBM actually does. Ditto for Cisco and a bunch of others. By posting apps that may get some traction, these vendors can at least get out in front of the next generation of workers.
  • Feedback loops. A freemium model also could allow for more developer and user feedback so vendors can iterate.
  • Long-tail customers. Freemium models are not going to make IBM look cutting edge any time soon. But by showcasing some capabilities for free, IBM gets to plant seeds that it can innovate. When some of those kids grow up to be enterprise technology buyers, it's possible that they'll have a favorable opinion of Big Blue over time.

Bottom line: Freemium models aren't likely to move the economics for these enterprise giants, but there are soft returns that can emerge over time. There's much more upside than downside.