Fred Wilson on the benefits of freemium

From Free Vs Paid by Fred Wilson:

We’ve struggled with early stage investments in enterprise oriented web services. Sales to enterprises often require expensive sales teams and it’s much harder to know if you’ve nailed the product/service with feedback from a limited number of enterprise customers.

It’s much better, in my opinion, to go with the freemium model, give a version of the service away for free to all comers, get a lot of users, get good market feedback, then develop a premium version of the product/service for sale to enterprise customers. If your free version is popular with a lot of users, your customer base is the target for the upsell and you might be able to live without an expensive sales force initially. And, of course, keep your costs really low until you start to get revenues.

(1) Fred’s post was written in October 2008, when the freemium model was being questioned. Just as relevant today.
(2) Cf. Does freemium work for b2b?

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