Paul Unger (1)

Editor’s note: Freemium – race to the bottom?

 | 

Paul Unger

The freemium model – pay nothing for basic then upgrade for more powerful paid features – is commonplace in online business services these days and property is no exception. But does an influx of non-paying ‘customers’ distract teams from looking after those who pay? Is it a race to the bottom or a quick way of grabbing market share?

At MIPIM last month, District Technologies’ Vanessa Lee Butz launched the app’s freemium model to allow anyone in the world to download and use the digital hub for tenants. She told the Startup Competition judges it would allow rapid take-up and testing of the service. Butz said this week: “Freemium models are the most common and successful SaaS (software as a service) enterprise solutions in industries that have embraced technology and digitalisation – it is high time that we take technology models that are proven and apply them to the real estate world. Of course this is a model that a business can only adapt if they are already large enough and whose platforms are self service enough so that the customer success teams can focus on both paying and non-paying customers to convert those into paying customers. We have had a huge response in interest and are happy to keep growing our platform through this new model.”

Freemium tends to strongly divide opinion. My unscientific study last week conducted through the medium of a Twitter poll, answered by 15 people, produced a pretty close outcome. Slightly more felt freemium was a bad thing, 53% to 40%, with one not bothered.

I then gathered views from a mix of buyers, suppliers and watchers across the market to get a more expert take on the issue.

Tom Dunn, development surveyor at Henry Boot Developments: “Honestly think it varies depending on what you’re buying into, but freemium gets bums on seats and encourages a good indicator of whether or not a product has legs.”

Owain Morgan, Simmons + Simmons real estate lawyer: “It’s driven by this all-consuming need to scale, even if that means operating at a loss. LandInsight have shown it’s possible to be successful another way.”

Dror Poleg, owner, Rethinking.RE: “Most real estate operators are wary of new things, particularly things that cost money. Allowing them to ‘get their feet wet’ before they take a full plunge is a great way to increase adoption. For startups, the challenge is where to draw the line. It’s also important to note that freemium should not be seen as a substitute for sales efforts. Offering a self-serve freemium can be a good way to generate leads and move prospects down the funnel. But ultimately, most real estate operators will still need a lot of handholding before (and after) they decide to pay.

“There is a certain ‘high’ that comes with new customers, even when they are not paying. Startups need to be disciplined and deliberate in how they convert these to real revenue. Ultimately, if a product is valuable, customers will pay for it. If not, free will still be too dear.”

Gabrielle McMillan, CEO, Equiem, a rival of District but which does not offer a freemium option: “On the surface of it the freemium model is an attractive proposition, but it can never provide the stability or satisfaction that the property industry needs. In real estate, customers want to know that they are dealing with an established group, delivering a quality, sustainable and secure product. The freemium model simply cannot provide that guarantee.

“In large part, this is because it is very expensive to build enterprise grade, secure technology. Those using the freemium model to expand rapidly and achieve scale will always struggle to sustainably fund their technology road map and invest in the product in the long-term. This usually means that the provider has to prioritise alternative sources of revenue – from advertising, transactions, or even customer data. What results is a serious loss of control over content, information and experience, a hugely diminished quality of product, and a frustrated customer base who begin to look elsewhere.

“Furthermore, providing a tick-box, one-size-fits-all technology, without any guarantee of the resources, on-boarding and client servicing required to make it sing, means that quality is always hugely reduced and the problem that customers were seeking to solve is only ever half met. Providers will always focus on their paying customers first, meaning freemium clients inevitably face huge frustration if problems arise. Proptech companies stretched thin by unsustainable expansion cannot provide the customer care needed for freemium clients and the result can mean a reputation and customer relationship damaged for good.”

Personally, I think if a product is a goer then start slowly and build carefully and cautiously with the help of referrals from those that are your biggest fans, the paying customers. But what do I know, you’re reading this for free.

|

1 Comment

Your comments

Read our comments policy here

Readers Comments

I think it varies from product to product. It can be easy to get businesses on board at low/nil cost but getting them to commit bigger sums of money can be tough, in my experience they need to experience the benefits for some time before they can fully commit.

By Somewhat informed person