And so now we'll talk about four key ways to ease uncertainty. I'll talk about how to harness freemium, lower the upfront cost, drive discovery, and make it reversible. And so to start with the first idea of harnessing freemium, I want to tell you a story that many of you are probably familiar with, about a company you might already know, and that is Dropbox. So if you haven't used Dropbox, you've probably at least heard the name before, but it's one of these unicorn businesses, over a billion dollars file storing company that allows you to keep various files in the cloud, rather than having to keep them on your desktop. Now Dropbox is very successful today, huge business extremely successful, but they didn't start that way. Initially Dropbox had a simple problem, people didn't know whether it was worth using, they had their old way of storing things on their desktop. And once you spend hours updating a document or storing photos of your family or your kids, you don't want to have to worry about losing them. And so people were scared about putting their information in the cloud. Where is that cloud? What happens if the cloud breaks down? How do I find the cloud? And so they didn't want to use Dropbox, because they didn't know whether it would be better than what they were using. Very simply, they were uncertain, and so Dropbox thought a lot of ways to ease this uncertainty. They thought about advertising, telling people how great Dropbox was. They thought about buying Google Search words to make people more aware of what Dropbox was doing, and help them find Dropbox when they were looking for file storage. But instead of going with these paths, they tried something subtly but interestingly different, they gave it away for free. Now, you're probably sitting there going, well, hold on. How can anyone make money giving things away for free? Right, any kid who's ever had a lemonade stand knows that giving away something for free is not a way to make money, but Dropbox built a billion-dollar business on giving something away for free. How did they do that? Well, they did something interesting. They didn't just give something away for free, they harnessed a notion called freemium. What Dropbox did is they gave a certain amount of storage away for free, something like 2 gigabytes or something along those lines, you could use as many of the features as you wanted, and up to 2 gigabytes of storage for free. But there wasn't just a free version of the service, there was also a premium version of the service. It had extra features, extra storage space, and a number of other additional things. And the notion was that by giving people the free version, Dropbox allowed them to experience whether they liked the service or not. Now, it's clear why consumers or customers like free things, right? Why wouldn't I like something for free? It's great for me, it lowers that upfront cost, if I don't have to pay the money, it sounds great. Why not use that something for free, but companies love freemium as well. Because what freemium does, it allows people to experience an offering themselves, to figure out whether it's any good or not, right? If you're uncertain about Dropbox, sure Dropbox can say it was great. But of course Dropbox would say their service was great. No one's going to say their product or service isn't good, and so that information is not very diagnostic. But if they let you experience it yourself, you've convinced yourself of how good Dropbox is, why? Because you've loaded all your files on it and now you've hit the storage limit, you decide you have to upgrade because you've used it so much yourself. Rather than them convincing you, you've convinced yourself. And it's not just Dropbox, if you ever go online for the New York Times for example, New York Times uses freemium. Think about Skype or LinkedIn, they use freemium. Think about Pandora, they use freemium. Almost every software as a service, every online service that we use uses some version of this freemium notion. And importantly, freemium isn't about tricking people, right? Dropbox doesn't say this service is free, only later to start surprising people with a monthly fee. Freemium isn't about getting people into something and then not allowing them to get out, it's not about charging their credit card every month and not having them realize it, right? There's no bait and switch, what's really great about freemium is people only get charged if and when they decide they want an upgrade, when they want more storage, when they want extra features, when they want additional functionality. They themselves make the choice, but by cleverly structuring the freemium, structuring what is free and what is premium, right? Companies get people to figure out whether they like it themselves, and encourage them to upgrade, right? Getting people to convince themselves, rather than pushing them one way or another. One question that when we think about freemium is well, how much should we give away? What should we give away and how much of it? In Dropbox's case for example, they could have given away full features for a limited time, you get unlimited storage for only 30 days. They could say hey, we get full features but limited space, a model that they do already, they could give away limited features indefinitely, you don't get limited space you get an unlimited space, but only a few of the features Dropbox has to offer. And so as someone thinking about harnessing the power of freemium, how do we decide which of these things to give away for free, right? How do I decide what things to give away, and how much of them to give? And so I think two key questions are important here, what will help them experience the offering itself, and what will encourage them to upgrade. And so let me walk through each of those in turn. I think a good analogy of the way to think about freemium is the following, right? Usually, there's a product or service that's paid, you can think about a wall between a person and that thing, right? They're on one side, there's a wall in front of them, and they have to scale that wall to buy your product or service. So imagine if I can't use Dropbox unless I pay money upfront, that upfront cost is money. Well, I have to scale that wall, I have to pay that money, overcome that cost to actually use the product or service, but I can't really see that product or service, and that's why I like the idea of a wall, right? Imagine a wall that's over your head, so you can't see over it. I don't know if Dropbox is going to be good, I can't see on the other side of the wall, you're telling me it's good, but I don't actually know for sure. And so what freemium does is it lowers that first wall. It makes it easier for people to not have to pay an upfront cost, and check out what the free version is like. And so mitigating those upfront costs, those upfront things that consumers or customers have to deal with, is going to be quite important, making sure they can experience the value of the offering. But once you get them to the free version, that's not enough, right? Because if they sat in the free version forever, you'd never make money. It wouldn't be very successful, and it also sort of wouldn't be fair. And so a question that is, how do we get them to migrate from the free version to the premium version? We want to make it as easy as possible for them to get in the free version, right? We don't want to necessarily even collect credit card information for the free version, we want to make as many people as possible get to that free version, but then we want to migrate them from free to premium. And so how do we do that? And so one question there is well, if we give away too much or too little, they might not want to check out the premium version, right? And if they can't see why the premium version is better, why would they ever upgrade? This is the problem LinkedIn has for example, many of us use LinkedIn, we love LinkedIn, we use the free version of LinkedIn, but we have no sense of what those better features are. So why would we ever pay to upgrade? And so what we have to make sure is that, next wall between the free and the premium service, is not too high. It's there, people have to pay to get over it, but it's not so high that people can't see that better version on the other side. And so be careful about giving away too much for example. Think about the New York Times, they give away articles as the freemium version, right? You can use a certain amount of articles a month, if they gave away say 40 articles a month, that would encourage many people to get into the free version, but no one would upgrade to the premium, why? Because they would never have any need, there would be nothing better in the premium version, most people don't use 40 articles a month, and so there's no reason for them to upgrade. And so if we give away too much, you think about a buffet for example, if we give away the entire buffet for free, there's no reason for people to pay for anything else. They're full, they've gotten everything they need. On the other side, we have to be careful about giving away two little, right? Say the New York Times gave only one article away per month, let's say they only give the paragraph of one article away per month. Well, that wouldn't be enough to get a sense of whether people know whether they like the New York Times or not. And so it wouldn't give them enough of a sense of what's on the other side of that pay wall to make it worth it to upgrade, and so you have to follow just in between, right? Enough that people get a sense of what that experience is like, but not so much or so little that they're not going to want to upgrade. Think about HBO or some pay-per-view services for example, they often say 30 days as a free trial. Imagine if they did something subtly different, imagine if they said, hey, the first five minutes of any game you want to watch, or boxing match, or movie, we'll give away the first five minutes for free. That will be quite interesting, right? Five minutes would be enough to get a sense of whether you're interested in watching that game or watching that movie, and if they cut you off at five minutes, well, you'd want to see the rest, right? They've got you curious enough and interested enough in what's being offered, that you'd be willing to pay for the rest because you're interested in what's being offered, and so you can give away many different things. But the key to freemium is thinking about the right thing to give away, enough to get them in that service initially, and not making it so hard to upgrade to the premium version. Make it clear there's something better on that other side, people can see what that better thing is, and make them want to upgrade. If they never see what it is, they're not going to desire it enough to be willing to pay for the upgrade, and so careful about giving away too much or too little at the same time. And I think one last thing is also worth thinking about when we think about freemium, think about the switching cost. So many of you have probably used one of these take-home meal companies, think about Blue Apron, or HelloFresh, or one of these other businesses, they offer rather than you having to figure out what to make for dinner, they send you the ingredients, they give you recipes, and you cook it yourself. Now, these businesses were supposed to be very successful, Blue Apron did a big IPO, but they've been very unsuccessful in the long-term about retaining customers. And one reason why, is there's no barrier to switching, someone starts using Blue Apron, Blue Apron gives away a few meals for free, that's great, that encourages people to use Blue Apron, but then HelloFresh gives away a couple of more meals and people just switch to HelloFresh. And then yellow apron, or green apron, or whatever the other services are called, also give away free meals and so people switch to them as well. And there's no reason why someone who's used one service couldn't switch to another, there's no barrier to switching. Think about the difference though, when you think about let's say Dropbox, right? Sure and other services give away storage for free, but most of us who spent time on Dropbox and loaded a bunch of files on Dropbox, don't just quickly switch, why? Well, the company hasn't prevented us from switching, there's no barrier that they've imposed to switching, we've imposed that barrier ourselves, why? Because if I've uploaded all my photos and files on one service, I don't want to then take the time to go ahead and switch them all to a different place, right? That switching cost that I've created through my own behavior, discourages me from switching, right? And so what smart companies do, is they both use freemium, but they encourage customers to create their own switching costs. If I was Blue Apron for example, I might want you to rate your meals. How much did you like this meal? Was it enough food or not? Which of these recipes do you like better? By encouraging you to input your own preferences, now I give you customized recommendations which make the service better for you, but it also lead you to induce your own switching cost. Now, you're not going to switch to HelloFresh because your recommendations are all on Blue Apron, and there's a cost that you've created to switching. And so make sure we're encouraging those customers to create their own barriers to switching to a new service.
