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I am happy to see the “Free” debate expand to the enterprise (Aaron Levie of Box.net analyzes the applicability of the Free model to Enterprise Software on TechCrunch). The ensuing debate has strong advocates in the Freemium camp, as well as those who believe Freemium is a stupid model.

I believe Enterprise Freemium can work, but not for everyone, and only if executed just right. To be clear on how I define success for the Free model, the two principle reasons I see for invoking the Free strategy are: (1) Cost effective branding and awareness, which hopefully lead to (2) More revenue based on the Free-to-paid conversion rate.

While there are a number of promising companies that have adopted an Enterprise Freemium model (37Signals, Google Apps, Box.net, InsideView), it’s too early to be sure that they will all live up to the promise of highly scalable business with lower sales and marketing expenses. Lacking the proof of time, just like in the early days of SaaS (DigitalThink, a company I founded in 1996, used a multi-tenant SaaS architecture before the term SaaS even existed), the debate will revolve around opinions and vision. And that’s the beauty of the technology space, where the winners are those that bet on trends that are highly debatable.

I believe Freemium is a game-changing opportunity for Enterprise applications and platforms, but it won’t work for everyone. There are two basic requirements for Freemium to work:
- Scale: the market has to be large, millions of users with TAM value of $10B+/yr
- Conversion: The Free and Premium offerings have to be designed to provide enough value to Free users to avoid high churn, but also enough value in the Premium offering so that at least 1% of the Free users are willing to pay for it.

Scale
The Enterprise market is more segmented than the consumer market, since there are fewer employees than consumers, and companies are highly structured (by vertical, size and internally by job function). The Freemium model won’t work for companies serving a smaller enterprise segment. Let’s see why.

Freemium offerings tend to have a majority of users in their Free offering, with a much smaller percentage willing to pay for the Premium offering (anywhere from 80/20 to 99/1). The simple math is that to build an interesting business ($100M+ of annual revenues) one needs at least 100k users paying $1,000/yr or 1M users paying $100/yr.

Conversion
A lot of Enterprise applications will find it challenging to create a valuable Free version without cannibalizing their paid services.  This is why the market has mostly focused on free, time-bound trials of the full-featured application, but free trial models have a number of limitations:
➢    Many users don’t want to invest time in setting up a free trial and learning a new application, knowing that they will lose access to it if they don’t convert to a paid account.
➢    Many users don’t have budget right now, so they walk.
➢    Many users don’t want to deal with sales people, they just want to try out the application before having conversations with the company. Most free trials are set up to require sales interaction (or trigger sales follow-up).

In other words, free trial models eliminate a large percentage of potential users, when compared to freemium models. Companies that can design a freemium product set that satisfies free users, but also drives meaningful conversions to premium services will have a clear scale advantage over those that only use a free trial model.

To be continued
In the next post, I’ll take a look at the current challenges and limitations in executing an Enterprise Freemium model.

by Umberto Milletti, CEO InsideView

A WORD IS BORN
The term “socialprise” will turn four months old next Friday, July 18th. That’s not counting a roughly three month gestation period from its conception (a white boarding session with our CMO Rand Schulman in December ‘07) to its birth (the launch of our SalesView product in March ‘08). Rand was describing the convergence of social media and enterprise applications to me when I half-jokingly uttered the term “socialprise” as a verbal short-cut for this complex phenomenon we were sketching out. The word had a nice feel to it and we soon found that it was helping us crystallize our thoughts around a whole new category of sales applications.

A recent post by BRASSmedia expressed hope that the term socialprise would one day grow beyond the initial definition put forth by InsideView. It turns out the future already arrived months prior. Within just a few days of introducing the term back on March 18th, I saw “socialprise” used all over the place to describe everything from enterprise applications to cloud computing to social platforms to organizational behavior to new forms of customer interaction to oh-so-many variations on Enterprise 2.0. Apparently our catchy new business term had been on the tip of many tongues and was now seen as the most succinct embodiment of various ideas, frameworks, and phenomena.

It was equally interesting to witness just how viral language has become thanks to social media. (No doubt this could make an interesting doctoral thesis for some hapless etymology/epidemiology scholar somewhere!) Google seemed like a good place to start for a quick and dirty way to quantify the “infection rate” of our new term. Within days of introducing the word, a Google search for “socialprise” went from zero hits to dozens of results (and that’s not counting our own press releases, white papers, and 3rd party blog postings written about InsideView.) Now a little more than three months later, Google brings back 22,500+ results. (By the time you read this blog post, it will probably have grown – check for yourself!) By my rather unscientific measure, that means the term “socialprise” is growing even faster than another widely beloved new business term “freemium” (78,900 results after 16 months in the public, and that’s after a WIRED cover story and a Charlie Rose interview.)

WHAT WE MEANT
Now that the term “socialprise” has given voice to so many different ideas, let’s travel way back in time (as measured by Google hits vs. calendar days) to look at the original definition put forth in March…

Socialprise applications are a natural convergence of social media and enterprise applications, and emerge as a mash-up of both the information and user experience of these previously separate universes. Socialprise applications enable organizations to discover and distill highly relevant information from an expanding sea of structured and unstructured data sources and present it in the meaningful context of specific business processes.

Like wines and fashion, you never now how words are going to age. OK, so it’s only been 3+ months but so far I’m pretty happy with how well our initial attempt to describe the phenomenon and emerging category of “socialprise” applications is holding up. Of course only time will tell whether our definition wears more like a classic Armani tuxedo or a cheap pair of polyester bell bottoms when we dust it off years from now. In the meantime, we’ve surrendered to the wisdom and whims of the masses – the living, breathing definition of “socialprise” will continue to be shaped on wikipedia and the media (erm, which is now everyone.)

WHAT WE DIDN’T MEAN
Of all the uses I’ve seen for “socialprise” it seems to most frequently be compared to, and thus confused with, Enterprise 2.0. Several posts have even speculated on the potential for socialprise replacing the more widely known and accepted term “Enterprise 2.0″. I have to admit that was never my intention and that we even contemplated jumping on the Enterprise 2.0 bandwagon (or the 3.0 for that matter) when we first examined our platform strategy. But we quickly realized that we were attempting to define an entirely different phenomenon and new class of application. For me “socialprise” means a mash-up of data from both OUTSIDE and INSIDE the organization – i.e. the convergence of social media (outside) and enterprise applications (inside). Meanwhile, the most widely accepted definitions of Enterprise 2.0 are focused on the use of consumer-oriented Web 2.0 tools behind the firewall. In other words, Enterprise 2.0 describes the use of tools like wikis, blogs, social tagging, crowd sourcing, and social networking INSIDE an organization only. The resulting data set lives in various silos within the organization rather than becoming part of (and interacting with) the cloud OUTSIDE of the organization.

A concrete example might be social networking tools being implemented behind the firewall to enable collaboration between employees of a given organization. That is Enterprise 2.0. Now let’s say we have a solution that allows you to integrate social networking functionality from the cloud (like Facebook, LinkedIn, Xing, etc.) directly within an existing enterprise application like Outlook (hmm, sounds like Xobni) or your CRM (and that sounds like SalesView). It is a mash-up of the data (i.e. contacts, profiles, etc) and the user experience from both INSIDE and OUTSIDE of the organization. That is socialprise.

WHAT’S IT MEAN TO YOU?
OK, so this is just my definition of socialprise. What’s yours?

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