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Freemium Model in Online Classifieds

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Material from a session on applying Freemium business model to online classifieds. Presentation given at International Classified Media Association conference in Nice in April 2011.

Publié dans : Business, Technologie
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Freemium Model in Online Classifieds

  1. 1. Making  Money  From  Free   Konstantin  Kalabin,  Top  Internet  Consulting     ICMA  Conference,  Nice,  April  2011  
  2. 2. Contents  !   Media  business  model  disruption  ! Freemium  model  in  classifieds  !   The  Magic  Formula  !   Applying  the  Magic  Formula  !   Customer  segmentation  
  3. 3. Media  Business  Models  Disruption   Technology   step-­‐change   Multi-­‐ Pay  for   Multi-­‐ Sided   Access   Sided   Markets   Markets   Freemium   Digital  access   costs  -­‐>  0   Digital  production   costs  reduced,  but  ≠  0   Profits  $$$   Profits  ?  
  4. 4. What  is  a  Multi-­‐Sided  Market?  !   “Multi-­‐Sided  Market”  is    a  business  model  in  which  several  different   types  of  users  exchange  goods,  services  or  information.  !   Network  effects  are  an  integral  characteristic   !   Cross-­‐side  (buyers/sellers)  is  most  common,  must  be  +   !   Same  side  (users/users),  can  be  +  or  -­‐  !   Tend  to  be  “winner  takes  all”  markets  !   Usually  one  side  is  subsidized  by  others  to  achieve  wide  adoption  !   Multi-­‐sided  markets  examples   !   Telephone  Networks,  All  Newspapers,  Visa,  Game  Consoles,  Google  
  5. 5. Classifieds  as  a  Multi-­‐Sided  Market:   Print   Prod   Sellers   Fees   Advertisers     Sales   Display   &  CS    (Free  |  Paying  )   Force   (Display)   Ads     Strongly  Negative     Negative   Very  Strong   Very  Strong   Legend:   Revenues   Circ   Buyers  (Readers)   Copy   Costs   &   Mark     Sales   Neutral   Network  Effects  
  6. 6. Classifieds  as  a  Multi-­‐Sided  Market:   Online   Freemium  principles   Prod   Sellers   Advertisers     Fees   &  CS   Online    (Free  |  Paying  )   (Display)   Sales   Ads     Strongly  Negative     Negative   Very  Strong   Very  Strong   Legend:   Revenues   Buyers  (Visitors)   Costs   Mark     Neutral   Network  Effects  
  7. 7. What  is  Freemium?  !   “Freemium”  is    a  business  model  in  which  one  segment  of  users  can  receive   service  for  free  permanently,  while  other  customer  segments  subsidize  the   cost  of  providing  the  service  to  free  users  !   Demand  is  maximum  at  the  point  of  “Free”.  The  difference  between  1p  vs   free  is  the  difference  between  having  to  make  a  decision  vs  just  do  it  !   Usually  free  and  paying  customers  have  same  needs,  but  of  different   importance  and/or  scale  !   Subsidy  happens  within  the  same  type  of  customers  –  key  difference  to   multi-­‐sided  markets  !   Free  samples,  shareware  are  not  freemium  models  ! Freemium  examples   !   Skype,  Evernote,  LinkedIn,  Google  Apps,  Zynga  etc  
  8. 8. Freemium  in  Classifieds  Business   We  need  to  get  scale   to  improve  profits!   Invest  in  marketing   and  drive  traffic!     Hmmm…,    you  make  an   interesting   point…  
  9. 9. Little  Experiment  Original  situation   Double  revenue  per  paying  user   Negative  Correlation  Double  conversion  rate   Halve  costs  per  free  user  
  10. 10. The  Magic  Formula  
  11. 11. The  3  Levers  of  Freemium  Model  !   Cost  per  free  user  (CFU)  !   Revenue  per  paying  user  (RPU)  !   Conversion  rate  (CR)   CR     RPU   CFU  
  12. 12. Cost  /  Free  User:  Minimize   Most  of  freemium  businesses  fail   because  of  prohibitively  high  costs  of   free  users   User   User   Total  Cost  /  Acquisition   Servicing   Free  User   Costs   Costs  
  13. 13. Cost  /  Free  User:  Acquisition  Will  I  use  this   Do  I  recommend   • Can  be  cheaper  than  SEM     it  to  my  friends?   TV   • Good  for  very  large  scale  service  again?   • Super  fast   • Expensive    (CPA  =  $0.5-­‐1.2)   SEM   • ROI  constant   • Fast   • Ideally  no  cash  involved   Partnerships   • Time  &  effort  to  establish   and  manage   • Very  Cheap  (CPA  =   $0.01)   SEO   • ROI  grows  over  time   • Slow   • Free  (CPA  =  0)   Repeat  Visitors  (Core)   • Organic   x  WoM   growth   • Greatest  asset  
  14. 14. Cost  /  Free  User:  Servicing  Will  they  enjoy   Do  they  still   using  our   recommend  us  to  service  again?   their  friends?     • Outsource  all  non-­‐critical   functions   Out-­‐   • Leverage  specialist  technologies   source   • Sharp  focus  on  80/20     • Pass  costs  onto  users   Eliminate   • Use  open-­‐source  &  free     technology   • Self-­‐service  everywhere   • Digitize  all   processes   Automate   • Balance   performance,   complexity,   reliability  
  15. 15. Conversion  Rate:  Maximize   Dominate  niche   Charge  for  really   demand   important  features   Page  views  go   Ouch!   up  after  paying   Demonstrate   Value   Make  It  Easy   Hmmm?…   !  Analyze  response  from  each  upsell   Be   Reasonable   Easy   !  Communicate  the  effects  to  user  in   their  terms  (“sell  twice  faster”)  ! Never  more  than  3  options  at  a  time  !  Provide  all  popular  payment  methods   10  mins  of  time  vs  £5?  !  Know  which  option  you  want  the  user   to  choose  and  make  it  clear  why   Conversion   !  Charge  for  things  that  have  obvious  costs   Typically  2  to  8%   (print  ads,  private  numbers,  larger  photos)   !  Price  proportionate  to  value  to  customer  
  16. 16. Revenue  /  Paying  User:  Increase   Sell  benefits  not  features   Manage  limited   capacity  –  charge   per  time  period   Vary  prices  by   category  based  on   avg  item  price  or   category  demand   Increased  reach   Play  on  urgency  
  17. 17. Cost  /  Paying  User:  Optimize  !   CPU  can  be  several  times  CFU,  but  usually  2x-­‐3x  !   Acquisition  Costs   !   SEM  optimized  based  on  lifetime  value  just  like  in   eCommerce  !   Servicing  Costs   !   Hosting  costs  much  higher  due  to  volumes   !   Support  includes  higher  human  involvement   !   Payment  processing  costs  (incl.  fraud)   !   Refunds  
  18. 18. User  Segments  &  Strategies   Max   Likelihood  of  paying   Delight:   Convenience-­‐   Trade  &   Harvest  &  Learn   Win  trust   Analyze   &  Time-­‐Savvy   Professional   Segment   Support  Beat  expectations   Sellers   Sellers   80%  of   Optimize   • 5%  of  customers   • 10%  of  customers   Revenue   Service   • 2%  of  ads   • 40%  of  ads   Volume  or   Frequency   Min   Max   Cost-­‐Sensitive   Spammers   Occasional   • 10%  of  users   Impress:   Minimize  impact:   Fast   Sellers   • 40%  of  ads   Delete  at  source   Simple   • 75%  of  customers   No  refunds   It  works!   • 18%  of  ads   Block  access   Min   80%  of  Costs  
  19. 19. Making  money  from  free     is  not  rocket  science!   But  it’s  not  far  off…  
  20. 20. Your  Questions  konstantin@topinternetprojects.com   www.linkedin.com/in/kalabin   Skype:  konstantin.kalabin  

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