Freemium: a challenging, fluid, evolving beast of a business model

by Colin Bell Email

Some may say I need to get a life, but I confess that Business Models fascinate me and I love applying them. One of the models that has fuelled tremendous interest, debate and offered a viable alternative to the traditional web based model of leveraging advertising revenue (although this may still be part of the revenue mix) is freemium.

Over the past few years freemium based businesses are among the few to achieve rapid growth. It's been pioneered by businesses that have evolved out of the bedrooms of web developers and has disrupted global industries and changed the expectations of customers.

Freemium works on the basis that a business will provide a basic version of their product or service to 95% of their customers for free and generate revenue from the 5% of customers willing to pay for a premium product or service. Hence the term freemium is a blend of 'free' and pre'mium'. Examples include:

>      Survey Monkey provides a basic web based survey service for free. They aim to embed the service in the customer's operations; the more customers use it the more value they gain and the more embedded the service becomes. The more embedded, the more surveys are carried out. This cycle continues until the point when the customer needs to carry out more surveys than the basic service allows. Objective achieved: the customer needs more, they're locked-in and now a paying customer.

>      Skype is another great example, providing free phone and video calls over the Internet and enticing a proportion of users to pay by offering cheap call rates to landlines and mobiles.

>      Spotify allows users to listen to music online but the free version is interrupted periodically with adverts, the premium, paid for version removes the adverts, and extends the range of music to virtually anything you could think of.

There are several things that excite me about freemium as a business model:

It's counter intuitive: There is something very exciting about starting something whilst not being 100% clear about how it will make money. For most freemium businesses true recognition of the value their service delivers is established overtime. Premium features evolve as the business increases its understanding of what users value. The business's understanding of how to generate revenue increases overtime as does the customers willingness to pay for premium features. The model succeeds by developing a deep understanding of what customers' value.

It's based on good old-fashioned marketing: A successful freemium model is reliant on an advanced understanding of marketing and how to lure and lock-in high value customers. AIDA is an age old marketing model and for some confined to the history books, yet it is at the very heart of freemium, its all about, generating Awareness - often through viral marketing, creating Interest - by removing the barriers to usage, creating Desire through providing people the opportunity to experience the value, and inspiring Action - through embedding the service in people's core operations.

The basic idea isn't new.  It's an evolution of 'loss leader' strategies such as that used in the mobile phone and razor industries, you get the handset or the razor at a low cost and revenue is generated through the purchase of a call package or razor blades (the Soda Stream is another great example). What has become more extreme however is the number of freemium businesses that continue to provide users with a great service for free for as long as 'they choose' to use the service. This is possible through technology's ability to deliver a low cost per user ratio (e.g. the costs involved in servicing 1 of 1,000 free users will be only marginally higher).

The question for you is - can providing what you do for free help grow your business?



An opportunity to create Local Growth and Jobs

by Colin Bell Email

In simple terms, to recover the economy needs more jobs. Only when people have stability will they feel confident to spend, rather than hoard, their cash. It's widely recognised that enterprise is the main route of sustained growth - that we need an 'enterprise led' recovery - and that within this there are two main sources of new job creation:

1. High Growth Businesses - the 6% of firms that create the lion's share of new jobs and wealth - (NESTA, Vital 6, 2009)

2. Business Birth Rate - new firms are a major source of NET new jobs (Kauffman Foundation).

There is however a third opportunity - to sustain jobs in local areas (particularly those most vulnerable to public sector cuts) through:

3. Making the £ work harder for the local economy by linking local businesses with local opportunities.

In the engine room of any local economy are the majority of businesses; those that may not have High Growth potential but are nonetheless critical to stimulating sustained demand for local labour and resources. They may not have a huge 'direct' impact on the overall levels of 'new' jobs but they do however have a massive role to play in 'maintaining' the level of jobs and growth within the core business population. In today's climate of austerity and shrinking markets 'maintating the level' is no mean feat, the normal pattern is for existing businesses to destroy not create or maintain jobs.

Our approach draws on the excellent work of the New Economics Foundation ( in recognising that more can be done to maximise local opportunities and stimulate positive money and resource flows. In addition to a focus on business birth rate and high growth we believe that we can deepen the economic resilience of local areas by maximising the use of local knowledge and resources in a way that makes the £ work harder for the local economy.

Here are a few thoughts on how:

Supply chain leverage and institutional thickness: Most, if not all, areas have significant supply chains, be they driven by the private or public sector. In most cases those supply chains are drawing on resources, knowledge and skills far beyond the immediate area. This is driven by the Prime's need to access the best quality, knowledge and service. The result for the local economy if they do not cater for this need?  Loss of local jobs and wealth. To avoid this outcome, we need to make the local £ work harder by developing local supply chains, forming collaborations and connecting local businesses with local opportunity. 

Develop social and intellectual capital: high value added sectors rely on the continual development and deepening of social and intellectual capital.  This is not only about developing scientific and technical knowledge, but also about breeding a 'BIG' thinking and savvy entrepreneur who can both recognise and exploit opportunities. Institutions are critical to investing in the development of such capital. More could be done to help them recognise (and capitalise on the fact) that developing the intellectual and social capital of their immediate communities has a direct influence on their ability to compete and innovate. UK economy, life choices and working patterns are changing.  Such changes include the growth of flexible and freelance labour and the choices young people will take when choosing their educational routes. Vocational sponsored degree courses and apprenticeships are already growing in popularity. There is a significant opportunity to work with businesses to spot and nurture local talent, to encourage the retention of those skills and capabilities within the area.

Export and trade beyond the local area: Making the £ work harder will have a significant impact on the local economy, but by itself is not enough. To create more jobs and wealth we must be increasing the local money supply by trading outside of the area and attracting and retaining more £s from elsewhere. Exporting is often viewed as something manufacturers do, however sectors such as ICT, Creative and Business Services sectors have scope to export on a much greater scale. Winning Moves itself is an example of this. We license our software in 20 countries.

Restructuring of the public sector: this is a sector that, in my view, will undergo significant change. We have witnessed a series of cuts aimed at balancing the books; this will be followed by structural change. Change will be driven by the pursuit of higher economic and social returns and to achieve this many believe that the public sector will make a transition from being deliverers to commissioners. Not only will jobs have to be replaced, to make the necessary adjustment, innovative and entrepreneurial solutions must be found. Significant opportunities exist for the private and third sectors to providie the levels of innovation and enterprise needed to make the adjustment -they do this on a daily basis in their own businesses.

So how can we connect local businesses and individuals with such opportunities?

The public sector has a role to create the conditions in which local economies flourish, seeking to address both social and economic imbalances. This is essentially the purpose of the newly formed Local Enterprise Partnerships. The below model helps to illustrate how targeted enterprise and business support is targeted and interacts. 

Connecting local businesses and start-ups with the local opportunities will help sustain economic competitiveness. This mitigates against the risk of low business survival rates and a consequential reduction in overall employment, making economies more resilient over the longer term. The net effect will be the retention of wealth, the development of skills as well as the more efficient use of local labour and resources within and outside of the immediate area.

A 3-step programme for local economic development:

Creating the conditions for effective networking and collaboration: Growing and productive businesses need resources, knowledge and competence to expand their business; they rarely achieve this in isolation. We must create a 1 + 1 = 3 dynamic. This isn't an organic process; networking must be done with intent, hence businesses and individuals must be connected on the basis of their complementary skills and knowledge.

Creating economic leverage through business investment and infrastructure development:Significant opportunities exist in most economies through business and infrastructure investment. However, the decisions surrounding such developments rarely consider the impact on the local economy in any great depth. There is an immediate opportunity to work with those successful in securing Regional Growth Fund investment to engage local businesses and apprentices in their supply chains. Through Local Enterprise Partnerships a dialogue can be facilitated with such organisations to understand emerging opportunities and their supply chain needs and requirements.

Work with local business to make them tender/opportunity/supply-chain ready: Once the opportunities have been identified then the next step is to connect businesses with opportunities that will not only help create wealth and jobs within the local economy but develop their capability to export their knowledge, competence, products and services elsewhere - their capability to do so will be greatly enhanced through collaboration. Our BenchmarkIndex® software is being extensively used by the United Nations for this purpose. Benchmarking modules allow organisations to review their readiness to exploit opportunities.  This process allows businesses to identify where they need to improve and which resource acquisitions will provide the greatest return.



Growing in and adapting to the new world

by Colin Bell Email

Over the past 20 years businesses have existed in a world of expanding global markets and rapid technological change. Many businesses have achieved growth by riding on the wave created by these markets and innovations. An overreliance on markets however can cause problems, as when the wave loses momentum so does the surfer.

I am not suggesting that such growth has been easily achieved. It has come as a consequence of hard work, entrepreneurialism and clever positioning. I do however suggest that in today's environment, growth of this nature is rare and the rules governing growth have fundamentally changed. By riding the high tide many businesses have achieved substantial growth whilst not having a distinctive value proposition - in an environment of shrinking markets and uncertainty, a distinctive and demanded value proposition is critical.

Uncertainty is the new reality and requires business to be in a constant state of adaptation. Businesses must create innovation cultures that 'constantly' anticipate change, innovate and adapt.



This represents a huge opportunity for entrepreneurs and small businesses that possess the vision, skills, attitude, tenacity and propensity to risk (which is amplified in an uncertain climate) required to manage this continuous cycle. Small businesses are accustomed to such circumstances and are much more able to be flexible, to adapt and to innovate. The risk is that a business completes this cycle once, rides the wave and waits for it to lose momentum.

To achieve continuous success, this cycle must be constant and embedded within the organisation's psyche. This can be achieved through developing an innovation culture that is as good at anticipating internal as well as external changes whilst interpreting how and when they will affect the business.

In the future to sustain growth and competitiveness, flexible business models that redefine conventional wisdom of how a business should operate are needed. Growth models are required that react, carry minimal overhead whilst providing high performance and constant innovation.  It is these businesses that will become the BIG businesses of tomorrow, creating the lion's share of jobs and opportunities.



High Growth Business Characteristics

by Colin Bell Email

I've been busy supporting High Growth businesses from across the West Midlands over the past couple of months. Academics have researched the characteristics of High Growth firms for decades and to date there are no hard and fast rules on what constitutes a High Growth business. Here are a few observations I've made:

They want to learn: they recognise that they don't know it all. There is little arrogance, they are humble about their achievements and constantly strive to do better. They listen to as many people as possible to inform their decisions and judgment.

Their eye is on the prize: they are driven by the future and more often than not have planned their exit from day one.

They can't do it alone: they recognise that although they got the business to where it is today they are not necessarily the people to get it to where it needs to be tomorrow. They recruit the people and develop the systems and processes that enable the business to be managed and grown without their involvement.

They set the pace: one of the most notable characteristics is that High Growth business set the pace; you don't have to push them along. In between meetings and phone calls they have listened and done stuff. It may be that we talked about restructuring a team - go back a week later and its done! It's not what you say but what you do that counts!


Think Big and Think Global

by Colin Bell Email

When I think of exporting pictures of ports, freight, customs and manufacturing fill my mind. Interestingly I rarely think of Winning Moves as an exporter yet we have established a global presence, selling our software to 15 Governments (soon to be 16 - watch this space) and have established a network of International Benchmarking Centres in both developed countries such as Australia and developing countries in Africa. This involves understanding the local context, culture, economic circumstances, translation, currency variances ......the list goes on. The business benefits presented through exposure to diversity and the spread of risk are huge.

Our vision - 'to be the worlds largest and best known benchmarking organisation' has exporting written all over it. I suppose what I am trying to say is, regardless of your industry think big and think Global - the world is your oyster!


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