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Networking Unplugged

Perspectives on cloud networking and software-defined WANs

Posted January 22, 2014
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LogMeIn Raises Question about Freemium: Freeloaders or Fantastico?

This week, LogMeIn fanned the flames of a growing debate on the long-term efficacy of “freemium” models, used by companies as a way to get customers to embrace a new product or service, and called into question the value of freemium users themselves. On January 21st, ten years after its introduction, LogMeIn end-of-lifed the free version of the eponymous LogMeIn Pro servicea cloud-based remote access and support tool used by tech-savvy consumers and IT professionals alike.

The idea of giving something of value away to customers in the hope they will buy something of even greater value in the future is not new. In the early 1900’s, a fledgling food company sent a legion of salesmen door-to-door to hand out free cookbooks featuring their wiggly wonder food called JELL-O. The idea was to hook housewives on the versatility of JELL-O and convert them into lifelong customers and dinner party advocates. We all know the rest of the story. Today, players like Dropbox, Evernote and Google have perfected the freemium model, each coveting millions of free users that vastly outnumber their paid customers.

So why the debate and why did LogMeIn decide to ‘log-off’ the freemium model for one of their most successful products? Freemium models are expensive to build and maintain, needing constant tweaking and nurturing. As such, they test the mettle of marketing organizations in their ability to realize a successful long-term freemium offering. While purely speculation on my part, it appears that LogMeIn was not seeing the conversion-to-paid rates they once did with their Pro offering. Without ongoing conversions, the carrying cost of freemium users (which is usually accounted for as a marketing expense for modern software companies) can rise precipitously. Forcing freemium customers to either convert or leave not only reduces their marketing expense, it has the added benefit of creating a one-time surge in new paid subscriptions.

While companies make adjustments to their freemium offers all the time, LogMeIn’s outright elimination of their free Pro offer is rare and, in my opinion, shortsighted. The relationship between buyer and seller has changed dramatically over the last decade. Gone are the days when a brand could carefully disseminate and control their marketing messages. Just login into Spiceworks IT community and search “LogMeIn” or “LMI” to see what I mean. The balance of power has shifted to the consumer and it’s never coming back due to three converging societal and technological trends:

  • AppificationThe nature of cloud and mobile apps (easy to get and use) are encouraging us to be experiential learners

  • Social fabrics: Social networks, communities of interest, self-appointed bloggers, the proliferation of online rating and recommendation engines, and a myriad of other technologies are connecting people to knowledge and the knowledgeable

  • Circles of trust: Consumers are more likely to trust an unknown community poster (think: Yelp or Spiceworks) more than a known brand.

What this all boils down to is that consumers are no longer dependent on companies to educate them, stir emotion, and help them make choices about their products and services. In this new, consumer-empowered world, the best engagement is getting your product or service to play a role the customer’s buying journey and, in some meaningful way, in their personal or professional lives. Companies are spending more and more money to get less and less influence and attention from prospective customers. I can’t think of a better way to get in front of the right people at the right time, accelerate learning, create preference, build a tribe of advocates, and inspire word-of-mouth than using a carefully curated freemium model.

Unfortunately for LogMeIn, the discontinuance of their free Pro offering will make them a victim of their past success. Once considered freemium fantasticos, I suspect a sizable number of their now freeloader customers will choose to log off LogMeIn—permanently.

 

Todd Krautkremer

Todd Krautkremer

SVP, Strategy and Strategic Partnerships

Pertino is my 5th start-up since "doing time" at AT&T and Siemens. I thrive on building new market opportunities and speak networking, security, cloud, XaaS, mobile, Big Data, carriers, and чуть-чу́ть Russian.

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