Website Builders: Exploring the Cons and Pros of the Freemium Business Model from We Blog Better

Website Builders: Exploring the Cons and Pros of the Freemium Business Model

Posted: 26 Jan 2014 09:00 PM PST

Wix Website Builder Just recently Squarespace website builder has introduced the Squarespace Badge by popular request of their customers who are very proud of using Squarespace, and are eager to share that fact with the world. Let me remind you that this particular site builder has NO free packages. This update (the Squarespace Badge) got me thinking about the freemium business model that has firmly entrenched in the world of website builders. Does it work?

How It Works

Freemium site builders provide their basic products (editors, hosting, templates, support etc.) free of charge. Sometimes, these features are enough to create a professional-looking website with a pretty decent functionality. However, to be able to connect a custom domain to your site, to get rid of the annoying ad, as well as to unlock advanced features, users have to pay. For instance, with uCoz website builder you can get a never-expiring, completely free account, and even use your own domain name. However, you have to upgrade your account to remove the ad and unlock eCommerce capabilities.

It’s all about how crucial the 'premium' features are for your customers. If free packages provide them with enough tools and lots of freedom, people won't upgrade their accounts just to get another extra feature. So, let's take a bird's-eye view of how this very business model works at startup companies as well as established web services.

uCoz Pricing

The Pros

Free means viral. When something is free, people share it with others instantly. The more free users you get, the more free users you get :), hands down. However, no one can say for sure whether they will turn into paying customers in the long run.
Easier targeting. It is easier to reach your business goals when you have an audience. When you have hundreds/thousands of free users, you have good chances to make them pay offering huge discounts, giveaways and using other marketing strategies.
Join millions! Startups love this business model, as it allows them to amass thousands of customers overnight and then show this number on their front page: We have 5,000 satisfied users!
Millions of free beta testers. Just ask your users to report bugs and send their suggestions about the platform improvement, and they will gladly share their thoughts. Webydo website builder has a separate 'Participate' page for that, which has proven very successful.
Traffic. If your income also depends on traffic, the freemium model is just what you need. Some site builders, for instance, rotate banner ads in control panels.

Webydo - Participate

The Cons

Low conversion rates. If you give enough functionality your clients may be satisfied with what they get free of charge. The freemium model is viable for huge companies that are capable of gathering and serving millions. If a company has 1 million users, even 2% conversions rate can be rather profit-making.
Human resources. You'll have to hire an army of techies to provide good technical support for your free users. If your free support is poor, they will hardly ever become paying customers.
Cost. Supporting millions can cost you an arm and a leg from a technical standpoint (bandwidth, hosting requirements etc.).

Squarespace Pricing

Summary

The freemium business model can be a great starting point for startups. It also proven effective for mass markets. Businesses that reject this model are also cost-efficient.

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