Monetizing A Free App
A number of our portfolio companies that have free web/mobile apps that are monetized by advertising have offered a low-priced subscription offering that removes the ads and, often, offers offline sync on the mobile apps.
Here are some examples:
I am sure there are other examples in our portfolio but those are the ones I am most familiar with.
I like this model a lot. As Duolingo said in their Duolingo Plus launch communications, it allows a free service to remain free for those who can’t pay for it.
It also allows those who don’t want the ads to remove them. And other value added features, like offline sync, make the subscription offering compelling for power users.
Pandora’s Plus offering is a good example of this approach and, because it is a public company, we can take a look at the numbers.
In Q4 2016, Pandora had roughly 4.4mm paying subscribers out of roughly 80mm total users, only about 5% of its user base.
But if all of those 4.4mm subscribers are to the low priced ($5) plan, then they would generate $265mm on an annualized basis. I assume that the subs revenue number is a bit larger because there is also a $10/month plan. So let’s say subs revenue is $300mm.
Pandora’s total revenue is about $1.4bn a year so subs represents over 20% of the revenue even though only 5% of the users take the subs offering.
So if you have a free ad supported service with a lot of regular power users, you should really consider adding a low priced subscription offering.
It will diversify your revenue mix and gives your users the ability to opt out of the ads if they want to.
How did you get through this whole post without using the word Freemium?
knock knock. twitter are you listening?
No…and, with regards to this topic, clearly they never have been…
They should have done this early.When you have established yourself as free for a long time, its much more difficult to go from zero to $1, than to go from $1 to $3.(Edit: Meaning the % of paying users they get at this stage might be low)Still…worth a shot considering where they are.
You and I are on the same page. The hardest thing to do in technology is to raise prices, people assume Moore’s Law applies to everything.There is also the Penny Gap: http://redeye.firstround.co…I’ve thought about this. What if twitter said if you have more than 1,000 people following you, you get charged a little, 10,000 more, and a million a lot.Now the problem with this is the popular people (or unpopular) would cry loudly about this and now that “the cat is out of the bag” it means if you don’t pay you cut people off that are following somebody.Also even though I don’t get it, this seems to be one of the biggest use cases of twitter.But think about the value of being able to reach tens of millions of people…….please no politics but we all know how much value.
You don’t pay to be followed. Instead, You “pay” to follow. You “earn” followers.Keep it simple. $1/Month for every 100 people you want to follow; capped at $5/month if you follow more than 500 people.As an alternative, the free (edit: following) option always exists (with its monetization avenues).
We disagree on this.If I want to follow people then I am the one that is providing value to twitter by the fact that I am providing one of the most valuable things in our age which is: AttentionI am the product.Now if I am one of the top 100 tweeters and I have 17mm+ followers (that is number 100)How much value does twitter provide me in the fact I can type out a message press a button and reach 17mm to 100mm people.I mean think of that, that is what we need to do sometimes in technology.My wife’s 98 year old grandmother just died (very sad, but she had a really strong run) Think of reaching 100mm people in 1919 when she was born. Think of what that would cost.
The opportunity to monetize from tweeters always exists (that was my last sentence above). My worry is that as Twitter tries to expand its monetisation from tweeters, it will alienate me and I will go away.With Google, I am always the product.With Twitter, it cuts both ways. They haven’t recognized this properly. In my case, Twitter is the product and I am the consumer.
I see your point when twitter started. Without people to follow why there is no demand.But now that they have built demand (for free) where is the value?I am sorry because this is my time waster and I can’t add twitter as another, but if you had for instance 10k followers would you quit? What would that do to your “brand”
I don’t disagree with what you said earlier about large audiences, but I think I have not communicated clearly at all what I was saying :-)….we have probably exceeded the number of 1×1 exchanges we should have without being rude to the others here :-). I just wrote a longer comment, but deleted it…
Good lord Girish, please don’t let a vocal minority of commenters restrain you from interactions.I hope you will note that those commenters apply lots of rules (and phantom intent in order to take offence) to the behaviour of others while failing to apply those rules to their own behaviour.
I hope you think I have not been rude. I like your comments.
No, not at all…
That they don’t charge people with large audiences is amazing.
How about maybe threading the needle. Charge people with large audiences IF they do anything that’s commerce-driven, even implicitly (such as “see my concert”). Take a percentage when it’s explicit. And charge for some added value metrics, services, etc.
Sure, neat idea.Are you telling me that you think basic Twitter is an easy substitute for people with large audiences?That’s the measuring stick – if I charge them, how do they replace me?Frig, nothing replaces Twitter.
No, you have this backwards: Historically, you pay by the copy for a newspaper, book, etc. So, if need to pay, then pay by each person are following.
Wrong end of the equation. $1000 for every 50,000 followers you can reach. The first 50K are free.Put some finance propellerhead on it and you can fine grain it into a massive revenue source.Clue – frickin – less.
Have held this position for nearly a decade. Hence, short and sweet.Also, its not adopted b/c CEO does not want to lose personal relationship capital with famous people who are power users – he is putting his personal interests in front of the business interest.Ergo, he should be fired.Its not like we do not know that Me First is his MO.
Hard to raise prices I agree.I worked for Umang Gupta (KEYN) doing M & A and marketing and while a super tough guy, he was all about raising prices when needed.His point was don’t whine about who you loose, think about the value and the economics of who will find this more beneficial.Tough thinking. Harder sell to sales teams than to the right customers when indeed he was right. Wasn’t always of course.
Yes, we agree but as Josh’s excellent post points out there is a huge disconnect in the demand curve from zero to one penny.Now on the other hand I could argue (sorry for crudeness) that twitter has done what drug dealers have done forever: give away the product, get people hooked, and then start charging.Honestly watching some people I think they would go into withdrawal.
Nicely said.Easy for me to criticize Twitter. Easy for everyone.In spite of the shit they did or didn’t do would still like to see them exist.There is a lot of shit I’m sure none of us know
It’s easy to criticize twitter. That’s armchair quarterback stuff. It’s easy for me to write a couple of words about my opinions.It is damn hard to change the world. They did that.
yup!there have been a few instances in my career where the world was my oyster.changed shit everywhere. created massive amounts of capital. watched my teams get married, have cars and houses when they started living at their parents,it’s a great thing. it’s freakin rare. it’s always flawed.I still want to do it again.
Yep. changed the world they did. Easy to criticize this or that, but they have made themselves an integral part of political, cultural, business, and tech conversations globally. It is a very big deal indeed.
people (or unpopular) would cry loudlyYou are right people (a small amount of people make a lot of noise). The mistake companies seem to always make (and people as well) is assuming that noise means something long term. So they do a knee jerk reaction and throw in the towel. (What Matt of Cloudflare did ‘woke up in bad mood’)  The fact is they take this type of thing way to seriously and should just let time play out. To many new things coming and grabbing attention every single day.Look at all the politicians that have resigned as a result of sex scandals in the past. Then a guy comes along that literally has a fatal error every few days and he is still standing today. Not saying everyone could do that feat but certainly proves that dissenters are more than willing to move on to a shiny new thing to whine about rather than keep pursuing the old thing.Fwiw I have personal experience with this type of thing with regards to the strategy (which entirely depends on the exact circumstances obviously). Other reasons why he did this (ipo) etc. but the fact is the timing reaction was emotional and tied to events that would have passed and that he could have used to his benefit.
Think if you could not tweet…….you would not make much noise……..
Back in the 60’s when I was in elementary school the toughest 6th grade teacher was Mr. Mazer. There was a mental hospital (now closed) called “Byberry” in the area it was on Byberry road. So he tells some kid “you belong in Byberry”. I remember my mom telling me some other mothers were all up in arms about that. In another situation the Alvin Alley dance company was at the school (they were that small then I guess) and some kids yelled out the N word from a window. So they left and never played (iirc). Never made it out of our small community (NE Philly). Oh yeah Mazer also said to some deliquent kids ‘you want to fight someone fight me’.So in this day and age (FB/Twitter) that type of thing would have had legs and the media would have used it to make some point about society or a trend because it would have been exposed to so many people. And if you give a bit of meat to enough people some will feast on it. Plus loads of video shit it doesn’t get any better than that. All this free content out there. And it will never end.All of this isn’t good in the end. Especially since the media is self serving about and they benefit financially. I have manipulated them in the past easily feeding them things (business things) that I know they will repeat. I couldn’t do this today because I would have to much competition. (Front page WSJ as I have mentioned and plenty of other things ..)
One word #Trump
Well I can tell you on a small scale that it is not only possible to raise prices but it is possible to charge for things that you never charged for before. I am not saying you can easily roll this out on a massive scale but as far as people’s nature they actually aren’t as picky as you might think they are. Feel free to write to me if you want exact details I think you will be surprised.One of the problems with companies doing this on a large scale is there is a big chance that people will complain and communicate with others. So then they overeact to that communication instead of (per my last comment) just holding firm and letting it pass. In the case of the classic ‘cash cow’ type business this is what they need to do. In the case of a business that needs to constantly grow and ad numbers, maybe not. My point is simply it isn’t cut and dry as it seems and depends on the exact circumstances and company situation.
I am not saying you can’t. I am saying it’s tough. As a matter of fact Twitter made it much tougher because people can communicate.
For sure, it would pound Trump on pricing.Its the exact opposite of a volume discount.Crazy.
Girish, pricing power is about substitution and then need.If power users get value out of Twitter, you can charge them because they have no alternative.Then, you can charge them right up to the point where the value you provide is, say. 150% of the price.You just have to have some intestinal fortitude and some idea of what you are doing.CEO only has ever priced one other service and its a percentage of transactions fee, so, he has actually never done it.
I just don’t get Twitter from a commercial perspective. It just feels like a huge wasted opportunity.
i’d tend to agree.the network effect play has run-out, numbers have been stagnant for a long-time. unlikely they will manage to rekindle explosive growth (not sure they’re even trying), thus – why haven’t they changed strategies. empower power users/companies/brands. there’s enough market feedback out there. just give the people what they want. they’ll be happy to pay.
I’d be happy to pay.
There are things they haven’t done that I’m just mystified they haven’t tried. Too long to go into here but basically I feel the feed is too noisy. ie low signal to noise and that a LOT of people don’t like that.
Guess what? No low hanging fruit of mass opportunity. You know that is what I always say business is about. Anyone making money or doing anything on the web (or honestly in any business) is just taking advantage and riding that wave on a market that is waiting to be tapped. (That is why investors want that ‘traction thing’. Not saying that isn’t a big deal and not saying some don’t climb mount everest. But the truth is there are no easy fixes for Twitter.The reason Facebook is Facebook, Google is Google and twitter isn’t either of them is simply because the fruit was there for them to take advantage of.
It is hard to remember it now but when FB and Twitter started there was a significant alleged differencea) FB was the social graph – the idea was that recommendations from those close to you were valuable.b) T was the interest graph – the idea was that unlike FB twitter would uncover th emore potent interest graph.What happened was that FB realized that the social graph attracted people but in itself wasn’t monetizable so they switched to the interest graph and the rest is histor. FB is the social bus but it monetizes with the interest graph.Twitter has never figured out how to best monetize the interest graph it claimed it had a hold on.Twitter’s problem is that it’s signal to noise ration for a user is extremely poor wrt the interest graph.
Twitter is powerful. Their value lies in being an exchange and helping others create value. Instead they think of themselves as a destination which is not that valuable. Google and FB are exchanges.
interesting comparison. Exchanges typically are very sticky, network effects, transmit transparent prices, and are not easily toppled. They also have first, second and third degree price discrimination
See my comments to @wmoug:disqus and @jasonpwright:disqus above and combine with what you just said. It’s all about clearing marginal supply and demand efficiently. Not easy.
check out https://leeroy.io/ , decentralized twitter model where you pay 1 c per tweet.
paying to tweet is antithetical to growing a network.pay for power tools – yes.receive payments for good behaviour – yespay to perform atomic unit of network – nope.
Howard Lindzon has a better idea for Twitter. Delay the free ad supported tweet stream by some small delay (15-30 seconds) and charge for an ad free real time tweet stream
not sure that’s great.doesn’t really gel with the algo’d/curated feed direction they’ve embraced which has already pushed ‘real-time’ off the front burner.for howard/finance – real-time is an edge – for most users, slight delay – no biggie.
That was my first reaction. “Ad free + real-time” is a false juxtaposition for twitter. Ad free and 30 seconds late is just fine for twitter. Price sits elsewhere, but not at the intersection of ad-free and time-delay as variables.p.s. For the guys in finance using time as an edge, they are measuring it in milli-seconds, not 15-30 seconds.
That’s not a great idea, as they screwed with the chronology so now my stream isn’t real time.They keep looking at others and copying them. All they need to do is look at the job they are doing and where they could add revenue without downgrading the UX.Not really rocket science.Its a direct broadcast network for users with M’s of followers. That’s a revenue stream that does not affect the product experience.What is Beyonce going to do? Start her own Twitter? Or Trump?A decade in and they have no idea what they actually do for people, Astounding.
Howard Lindzon has a better idea for Twitter.Better for?An idea that someone who is very into twitter and uses it a great deal (or needs it because they are people in the news business or some other niche) is not an idea that will work with people, the mass of people, that make up twitter users.For example how many people watch the news at night or a tv show in real time vs. how many people watch it on DVR?Traffic in NYC? Sure 1010wins in real time. Other things? A delay is fine. Ad free radio? My car comes with Serius XM whatever and I didn’t use it when it was free and most people don’t pay for it, right?Honestly do I really have to know right away that there is a flood in a city that is thousands of miles from me? It can actually wait until I get home at night. The number of people that think they need to know that right away is not large compared to the number of people in the country or the world.Figure out a way to get me to use twitter every single day like I come here every day and you will have snatched the pebble from the hand.  Reference to Kung Fu with David Carradine.
is this the true pain point that twitter participants need solved? Find the true pain point, solve it, charge for it.
The ad stream has to be painful for people to be willing to remove the pain. Unlike youtube or other ad-supported products you mentioned, Twitter’s ad stream is not painful. It is easy to ignore. Heck, some ads are even useful or entertaining..Delaying the tweet stream is a good idea but I would be concerned about negating a core value prop of twitter (real time network) that can damage the brand. Another way is to increase the number of ads in the timeline to cause pain but that can also freak people out..In my view, the better monetization model is to deliver increased value to power users through new tools and insights.
I like the idea of adding value for premium users, not degrading the experience of existing customers…
What if Twitter bought Patreon, GoFundMe, etc., etc., and made most of its money from those services? They could look at all the kinds of paid services that people use Twitter to promote and drive traffic to, and buy those paid services. Look for the overlaps, buy the things that overlap, and then integrate even better.They could buy Buffer. Why don’t they charge for TweetDeck?Twitter, itself, should be the razor and then all these other kinds of paid services are the blades.I don’t know if enough people are willing to pay for ad-free. The ads are so easy to just scroll past. Why pay?I think charging for volume of followers or accounts-followed is a huge mistake (mentioned in other comments). Seems like touching the third rail of social networks to do that. They shouldn’t charge for anything that drives engagement.
exactly. they need to make it easier for power users. they are more focused on new vs. power users which is a real shame. They have enough resources to do both.
Yeah. Also there’s the YouTube model that someone high profile had suggested (I forget now, who). Enable the big Twitter stars to do more, get more exposure, have exclusive, specialized experiences for their followers, and then revenue share with those stars on really integrated, high end sponsorships of those experiences.
I am not convinced that charging people for ad-free services will work for twitter. it will not for facebook either or any business that inserts native ads within the feed.It is easy to move past the ad, and some times they might even be valuable to the user so why bother pay to remove it?What is more likely to work are power tools for power users with >10k followers (or some reasonable threshold). Why would a politican, celebrity, or any brand not pay to better segment their users, deliver segment specific messaging, auto-curate tweets according to their interests, connect with potential customers, etc..
I believe you are on to something here. However, most of the comments below talk about leveraging subscriptions to offer native twitter enhancements (adfree, timing, followers etc) but I believe Twitter as a “broadcast” network unlike no other has an opportunity to leverage value outside itself. Given the power is in the links, what if for this subscription fee (which I’d gladly pay) we not only get some of these added internal features but also the right to view all premium documents posted (those behind paywalls) and Twitter shares some of that membership fee to those publishers. This would encourage more premium publishers to participate and compensate them for what the Twitter community views while at the same time protect their standard advertising revenue model.
Shareholder interests vs user interests. Not the same interests. Aristocracy vs peasantry. A decentralised peer to peer architecture will replace it.
This is an interesting Twitter clone built on Ethereum blockchain, https://leeroy.io/with peer to peer micropayments (tipping). It is really just a proof of concept.Interesting blog post on future of decentralized social media apps.https://blog.coinfund.io/de…
Hi All, This is OT to today’s topic & related to yesterday’s post. Sorry in advance (and yes, freemimum is a solid model, including in edtech where I work – e.g. free in school, and optional parent at home upgrade for enrichment work)If you have 5-10 min this AM, can you scour Twitter for rescue requests and enter them at http://bit.ly/harveysos? Even if you can enter just a couple that will help. Even one.911 & local responders are of course the first channel, and that is where ppl are being directed first, but this form (http://bit.ly/harveysos) goes to the crowdsourced map that is being used to coordinate rescue dispatches by groups like the Cajun Navy & USCG.If you’re interested the form populates this Google sheet, https://docs.google.com/spr…, and then once handled and dispatched, the maps at http://harveyrelief.handiwo…RTs of related requests for this type of help from Twitter handles (at)NYTechResponds and my handle, (at)brooklynrob, also helpful to solicit more help.Again, apologies for the OT but trying to help get these entered in and the need in Port Arthur area right now is urgent.
Still OT on Port Arthur response. Map is at http://harveyrelief.handiwo… that is sourced by the crowdsourced data entry from social media. If you have even 2-3 minutes to a 1-2 of these, please do… it makes a difference as this data is used by numerous first responders, both official and ad hoc/amateur.
Thanks Rob.Port Arthur, home to the world’s largest metro-chemical refineries, is just frigging getting pounded.Good on you.
No problem. Happy to help. The NY tech community has some unique perspective having done this — mobilizing tech ppl via GDocs, mapping APIs, etc – for Sandy (our host was also very helpful during that, despite being out of his own home at the time), and it’s great to be able to help our colleagues in the Houston tech community. They are doing really great work down there.I really encourage everyone and anyone to chip in, even if it’s just a few minutes here or there. A way to start is going on the slack team at https://sketchcity.slack.com and saying what skills you have, what time you have, and asking what would be helpful.
Interesting. When I worked in mobile games, we offered a one time IAP to remove ads from many of our ad supported games. The take rate was so low that revenue was negligible. Subscription wasn’t available then and we didn’t bundle with other value add features, though. Maybe that combination is the trick.
agree — audio ad units are more intrusive than visual ones, so in my experience take rate on ‘remove the ads’ for games and other utility apps with visual ad units is much lower than for Pandora or other audio ad unit models.
Either that, or Go ICO and give your token a valuable user utility that creates a new mini transactional economy.
Kik did that…another blog post altogether!
How does the shared utility in an ICO network account for marginal differences? Another way of asking is where are the incentive and disincentive lines drawn?
Each case is different. I’m not sure I understand the question well.
SoundCloud Go however is one of the worst freemium option out there though. although this is more to how they tackled the freemium model and what they put up for subscription than using the freemium model itself.
To drive conversion from free to pay I think a service should provide more added value than just an ad free benefit. It’s becoming increasingly difficult for services to monetize w/ advertising, especially with FB and GOOG dominance, yet current premium sub offers IMO frequently aren’t attractive enough. I think we’d see much higher free/pay conversion rates for these types of services w/ a stronger value prop beyond ad free, but, of course, the devil is in the details.
It’s a pretty easy calculation to offer a premium version. Earnings per user are so low on most ad-supported sites and websites that even $1-2/mo or some $20 annual fee can be well above what you’d earn in advertising dollars.
CONTRIBUTORS:Reuters is reporting KIK the Messaging service, valued privately at over $1 billion is going to try to raise $125 million in an initial coin offering (ICO.)It is newsworthy because it will be the first “non-blockchain social media application” to do an ICO.http://www.reuters.com/arti…
“…it allows a free service to remain free for those who can’t pay for it.””Pandora had roughly 4.4mm paying subscribers out of roughly 80mm total users, only about 5% of its user base.”- this may sound counter intuitive, but one might wonder if those who can’t (or won’t) pay are in the overall context of the service subsidising those who do pay. would this service collapse if the 95% departed? from whom is the 80% of total revenue coming? it feels like the aristocracy and the peasantry in 18th century Europe. the former could not exist without the latter. then came revolutions.this model feels temporary.
That’s one aspect of, or way of defining, neoliberalism; which at its heart is unmitigated winner takes all network effects.The problem is in the lazy way companies/platforms try to clear average supply and demand. The real answer lies in solving for the vast differences in marginal supply and demand. You’d really like to see a model where those who listen to an artist directly pay for that artist. But add to that shared wealth a “buffer” that makes the system sustainable and generative. Broader network effects should be shared, but so too should private network effects.
Add Disqus to the list of portfolio companies with ad supported and ad free subscription options
Quizlet Go gives you a inexpensive way to remove ads from Quizlet. For just $1.99 per year, Quizlet Go will remove all the ads you see on Quizlet across all of our platforms This seems incredibly cheap. I am also wondering how a student would get their parent to pay for this even at $1.99. What’s the pitch? “Mom can I have your credit card so I don’t have to see ads on Quizlet?”. Sure the price is trivial but it would be a natural instinct to not want to put your credit card oniine or take the time to fill out a payment form for that reason.Suggestion: Come up with some other benefit that sells the parents on this. Also raise the price a bit as well. $1.99 is really to cheap to convey any benefit. For example if you were on a plane and could get a different seat and only pay $1.50 wouldn’t you think the different seat isn’t really worth anything? (Arbitrary example to prove the point.)That said sure maybe they have already done experiments with pricing but to me the friction is with supplying a credit card and not the price. Kids also aren’t super price sensitive this is about the cost of french fries.With Quizlet Go, we’re also giving our iOS users something we’ve never had before on Quizlet: custom and premium themes for flashcards.Kids are obsessed with what others are doing. Would think if there was a way to see what your friends were studying in real time and also communicate with them while studying that would be a great feature.  Note I don’t know the product so maybe there is already a version of this now. Or sure maybe it would be a distraction. But the idea is to do it right so the feature doesn’t become the drawback and not throw in the towel.
For my startup, the extension I’ve had in mind is to permit one user to send results to another user. But for that, users have to be identified in some way, but as it is I am not asking users to have user IDs, passwords, or to login. Sure, I could let users send to another user via their Facebook, etc. account. Maybe early on that would be the easy approach. But, sure, might charge for such.But 80 million Pandora users is good! Of course, my startup is intended to do especially good things for users of Pandora, Netflix, YouTube, and much more. So, maybe I have a shot at my first-cut, back of the envelope goal of 1 billion users!It’s also good to see from Pandora the pair of the number of users and the annual ad revenue.
I took exception to an Innovation training “expert” who announced to the class that Freemium is dead – he doubled down by saying “No VCs are funding this model”I will send him this link…
Not a huge fan of no-ads subscriptions. They remove something negative instead of adding something positive – which isn’t a great upsell pitch.I do however think that a no-ads subscription tier can make sense as an irrelevant alternative or decoy price alongside other subscription packages to positively influence the price/value perception of more lucrative subscription offers.http://julian.digital/2017/…
+1 on your soundcloud pro comment, though I’m not planning to drop. I’m so glad they’re still there. (and pretty sure I pay more than $6 a month?)
Hi Charlie. Hang in there for another couple months. We have new management minding the store and I’ve alerted them to this issueFor clarification are you saying that creators who pay for a creator account should have an ad free listening experience or an ad free creator experience or both?
I’ve sent them the link to this thread. Thanks for the clarification
Ad-free is not viable for an audio company. Look at the disaster of Soundcloud.
I think they should turn that on it’s head.