How Bitrix24 Thinks About Freemium

Last week we’ve made an announcement that free Bitrix24 is now available to unlimited users for communication and collaboration purposes. If you speak Russian, you can watch the recording of the presentation. I’ve been wanting to write an article about evolution of freemium models for a while now and this is a good opportunity, because Sergei talks about the reason behind our recent move, but I want to talk about ‘the reason behind the reason’, without giving away too many secrets.

So the evolution of freemium thinking usually goes like this. At zero point you are thinking — if we make it free, it doesn’t matter how crappy at it is, people still use it because free is free. Obviously it doesn’t work this way, but many, many companies are still starting their freemium journey at this point. The next step in evolution is thinking ‘it’s decent/great and it’s free, so it’s going to grow like wild fire’. It too frequently turns out not to be true, but a few exceptions start to appear at this point. Another variant of this state is ‘it’s great and it’s free, so we don’t have to spend on advertising’. Again, a few exceptions exist, but this hopeful scenario doesn’t work for most that try it.

The overwhelming majority of companies that use freemium model are at stage three — ‘this gets more people to try our product and we can find a way to monetize them’. This actually works for many. The problem is that it typically limits to millions/tens of millions in revenue, though, again, there are noticeable exceptions here.

We’ve been through all three of these, or, to be more accurate, skipped to number three when launching Bitrix24. We are now at stage four. Stage four is when you change your freemium business model so that it later changes the entire market. I know, it sounds grandiose, so let me give you a couple of examples so that you understand what we at Bitrix24 are attempting to do. Example one is Skype and example two is Gmail.

Back when I was in college in sunny California in the 90s, I remember receiving a ton of offers from Sprint, PacBell and other telcos. All those telcos, just like Skype, had access to same emerging technologies — voice over IP and others. There were and still are, many providers, who are give away phone calls for free/near-free. Many weird business models were considered, like ‘we’ll let you call for free, but you’ll have to listen to advertising’. And, of course, cheap unlimited call plans started to dominate the market back from that time period.

The reason why Skype emerged on top and NOT all those startups and established telcos, is because Skype thought BEYOND telephone numbers and telephone calls. Yes, it used familiar long distance and international phone calling model (at dirt cheap rates) to monetize their service, but they gave FREE and unlimited way for people to communicate with each other that wasn’t tied to their phone number. Chat and video calls, screen and file sharing also weren’t available via landline or mobile phones either. It’s this free part of the freemium model that made the big difference. Of course, if you’ve read my post about the failure of open source CRM, you instantly recognize this monetization model inside our CRM.

Gmail is another great example of ‘stage four’ freemium, especially since people don’t think about Gmail as freemium — just free.

Chances are you’ve never paid nor will every pay for your Gmail account, unless you are a Google for Work user. A quick history trip back to the 90s (remember Hotmail?) should refresh your memory regarding popular monetization models from that time period — banners, email footers with third party advertisements, etc. We know how that ended. Google, being as smart as they are, figured out that by giving away the best free email service that can make money in SO many ways — and I am talking big data here, not Adsense — that they continue to dominate the niche of both personal and increasingly business email services, where they emerged as a #1 threat to MS Outlook and Exchange franchise.

We try to use the elements of ‘Gmail thinking’ when working on our freemium model in addition to ‘Skype thinking’. Because we compete with so many established, popular and superb freemium services (Zoho for CRM, Slack and Hipchat for IM, Dropbox and Box for document management, Asana and Trello for project management, etc.), we can’t simply give people free edition of Bitrix24 to try our service and then charge $6-$20 per user for premium plans. Trying to beat Slack, Zoho, Dropbox or Trello at their OWN game is a suicide mission (though many startups are still trying, my condolences to their investors, founders and employees).

If you look at our pricing plans, you’ll see that they are structured very differently from freemium plans of our competitors. This is no accident. If you are a small company (up to 12 employees), you get almost everything free in Bitrix24 — communication, collaboration, CRM, tasks and project management, document management, shared calendars, HR system, etc.

Than we have Bitrix24 Standard and Bitrix24 Professional both of which come with unlimited users. Bitrix24 Professional also comes with unlimited online storage. We’ve made only two tweaks to our freemium model over the past four years. We’ve added unlimited communication users to free plan last week and we’ve added Bitrix24 Plus plan last summer, when we discovered that we need a pricing point between 0 and 99 dollars.

Here are our consideration when designed our freemium model for Bitrix24 four years ago. A ‘typical’ setup for a small company is this (I am going to use solutions that are most familiar to users in North America). We’ll use Slack to communicate with each other, Basecamp for projects, Dropbox for storage, Base CRM to manage clients, Bamboo HR for HRMS, QuickBooks for accounting, Zendesk for support, MS Exchange for email, etc.

When companies pick a solution, there is an approval process and it starts with costs. How much is it going to cost us? In order to calculate the costs, you have to start asking yourself questions — how much online storage space do we need? How many people will need access to our CRM? How many projects will we run? How many seats do we need for customer support solution?

A lot of times companies don’t know the answer right away. They need to think, come up with a number and then ask for approval. This means delay, and delay kills sales. That why we have a plan with unlimited users, storage space and everything, and it’s priced at only $199/mo. The only decision we want our customers to make whether they can afford $199/mo. It’s a simple one to make.

The reason why all essential Bitrix24 tools are available to all Bitrix24 users right away (even to free users) and aren’t pieced out to be sold separately (like Zoho and others do) is two-fold. We want the entire company to use Bitrix24, not just a department or two. Let’s say a company is unhappy with their current CRM and they give Bitrix24 a try. They aren’t thinking about replacing HipChat, Box or Asana that they are perfectly happy with, just the CRM part. But once they start using Bitrix24 this question comes up — do we need pay for those is they are already available inside Bitrix24?

The opposite scenario works as well. A company may not be using CRM or thinking that it needs one at all. They are actually looking for a free project management tool to work with their clients. That’s how they stumble upon Bitrix24 and then discover that in addition to free project management, Bitrix24 gives them free quotes, invoices, email marketing and client management tools. So they start using CRM for the first time ever. And it’s ours. This is important for us for several reasons.

Acquiring customers who search for CRM or project management is very pricey. Sure, we do have landing pages for team collaboration software or web based CRM . But we know that we can get people to use these tools by targeting different and much cheaper interests, like free online office calendar. When you pay for customer once but have over 35 tools to offer, the math works in your favor.

The latest change in our freemium model — offering free unlimited users, is all about going after ‘non-business’ users as well — PTAs, clubs, homeowner associations, schools, universities, churches. All those people WORK somewhere as well and we hope they’ll take Bitrix24 with them. Obviously, it’s too early to tell but we’ll know soon enough. The day after we made the change, we crossed 3000 new company sign-ups a day mark, which is an important milestone for us. We believe that at least one million new companies need to try your solution each year, if you want to compete with the big boys. We are finally there. It took us almost exactly four years to get to the first million accounts. /Chest thumping mode off.

I realize that your business is very different and our examples may be of little to know value. But hear this — freemium is now a NORM rather than an exception. Everyone is at stage three. More over, with so much VC money sloshing around, some freemium models are operating at perpetual loss, so ‘stage four’ thinking might be your only option if you want to turn the tables in your favor. Change your model to change the entire market.

I personally find ‘information asymmetry’ a very helpful concept for this. A while ago I read a book about Claude Shannon (the father of information theory) and Ed Thorp, another mathematician who’s famous for ‘Beat the Dealer’ book.

Claude Shannon was the first person to be able to beat casinos at roulette. You probably know that all ‘roulette systems’ are hogwash and it’s MATHEMATICALLY impossible to systematically win at roulette. But remember, Shannon was a math professor himself. He approached roulette from a different point of view. A roulette was made by human beings and it was used by human beings. The math would be true only if all roulettes were perfectly leveled and a number of other assumptions were true as well. Shannon was able to identify many tables where these assumption weren’t true and was indeed able to prove that it’s possible to beat casinos at roulette because they were operating under faulty assumption — many roulettes weren’t leveled indeed and you could consistently predict how this affected the outcome.

His colleague Ed Thorp took this even further — to Wall Street — and made millions or even billions. All Wall Street models used for trading used erroneous assumption as well. That the market was ‘perfect’ that information was accessible equally to everyone and it was distributed essentially simultaneously. Thorp knew this was not true. He also knew that traders who were using these models DID NOT know that their assumptions were erroneous, a key element for his strategies. All he had to do was to devise statistical trading models that would bet on the fact that these people would misprice risk, equities and options because they did not realize they were wrong in their assumptions. There are a number of great books and movies on how information theory elements helped Shannon and Thorp to make money in Las Vegas and Wall Street, card counting being most famous but least interesting example to me personally.

The information asymmetry framework can be very valuable when thinking about business and pricing models for your SaaS in my opinion. It makes you question assumptions made by both you and other market players about what people are ready to pay for, how decisions are made, how customers are acquired and the service is monetized. The desired outcome of this analysis is coming up with a model that gives you ‘unfair advantage’, even if it’s a temporary one.

If it’s possible to beat Las Vegas and Wall Street, it sure as heck should be possible to wreak havoc on your online competition.

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