In Defence of The Freemium Model

There was a big debate a few years back about the merits and demerits of the freemium model in SAAS.

Then freemium lost the debate.

We tried both the models Free Trial based and Freemium based models for both our products Proxies API and Teracrawler.io.

We want to rekindle the old discussion because I think we have something to add to it. I think we found something. Here is what we learned.

Both these products have a unique usage pattern, which is different from the regular SAAS products.

For the regular SAAS products, let's say Drift, the usage is pretty much the same, all things being equal, month on month. There are no special months that have dramatically higher or lower traffic that results in fewer or more chats. So it makes sense to go the free trial model for a month and then simply charge.

But for a product like Proxies API, which is a rotating proxy API for developers, the usage patterns can have some dramatic spikes in usage. Usage never seems to go to zero, which is good for us, but it does have lower lows and higher highs for most of our customers.

This means that if we only have a model of charging, then we risk the customer completely leaving the product in a lean month or 2 when they would have needed us in a big way right after that. We have seen this pattern time and time again. If we smooth it out, the graph curves up and to the right. This is because, once they start using web crawling data as a part of their system in their business, customers tend to see the benefit after a few months, discover new and more enhanced data sources and want to scrape more data. Not to mention that the web itself is constantly growing.

It would have been foolhardy to walk them out of the door just because they had a lean couple of months. We keep them. We give them 1000 API calls free just so they can keep the basic crawling needs being met. We even offer an option to pause the account instead of canceling it outright, and more than 80% of our customers opt for a pause when making any change in billing at all. With TeraCrawler, which is a cloud-based web crawling service, the dynamics are the same because of the domain is the same.

So the rule of thumb is, if you have a steady line of usage month on month, a free trial/paid offering is a sensible route, but the advice falls flat on its face when faced with a wave-like line of usage that is natural for web crawling projects.