Freemium 'best way' for IT vendors to clinch contracts

Model of giving free or trial versions of software to entice enterprise end-users deserves consideration, since they now bypass IT departments and utilize alternative online resources, analysts say.
Written by Jamie Yap, Contributor

IT vendors looking to entice business end-users with a free, pared-down product in hopes that the enterprise would eventually adopt the paid version of the software represent a new and possibly "best" way of utilizing the freemium model, say analysts.

However, organizations will have to do their due diligence before adopting such services as the additional features in the paid version might not meet their needs, others noted.

Charles King, principal analyst at Pund-IT, said the freemium practice is "older than software itself". Vendors have typically targeted the IT purchasers and decision-makers with freemium products to sell their enterprise software across the entire organization, he added.

However, the shift to targeting end-users, and hence bypassing the traditional decision-makers, to influence enterprise IT buying habits, patterns, and strategies is relatively new, King pointed out. And it is worth taking seriously because of two reasons, namely the prevalence of IT consumerization, and software companies tapping on the reach of cloud computing to deliver their products, the analyst said.

King said the emergence of IT consumerization meant technology has fully escaped the confines of IT professionals, allowing every individual to choose and use the IT resources they want instead of adhering to those sanctioned by the tech department. Now, the IT team will have to adapt and accommodate users' demands or risk turning the company inflexible and less competitive, he stated.

The maturing of cloud computing, and in particular software-as-a-service (SaaS), will also allow software vendors to deliver their freemium products online to establish themselves in the market. As such, there could be real value and innovation for customers to benefit from these offerings, King said.

Stephen Hurley, a professor of marketing at Hult International Business School, said the free or limited trial versions of software usually have enough "tasty" functions and capabilities that provide value to users.

So when users realize a lot more can be accomplished and efficiently with the full version of the product or when the program becomes embedded deeply into the company's processes, that's when enterprise customer will take the plunge and purchase the product. This is why freemium remains the "best way" to win contracts, Hurley stated.

Evaluate need for paid versions
Richard Edwards, principal analyst of software information management at Ovum, added that end-users using free, consumer versions of cloud-based services such as Dropbox or Skype may get their jobs done more effectively with little to no added costs.

Companies, though, may choose to block these services off due to concerns over governance, risks, and compliance, Edwards noted.

Thompson Teo, associate professor from the department of decision sciences at National University of Singapore's business school, also urged enterprise customers to consider the long-term costs of these services before deciding to pay for the full offering. They should also consider the need or usefulness of the additional features that the paid version brings to the organization, he said.

King agreed, saying that while the freemium model frees enterprises from immediately factoring in costs when adopting the products, they should still conduct evaluations on whether the software will measurably benefit their organizations.

Editorial standards