Can 'freemium' work for businesses, too?

July 20, 2011: 1:04 PM ET

Moving freemium to the corporate level will be tricky.

From right to left: Survey Monkey CEO David Goldberg, Index Ventures partner Mike Volpi, unspecific Brainstorm Tech attendee.

FORTUNE -- With consumer-focused companies like Angry Birds developer Rovio and Spotifyproving that freemium is a valid business model in the consumer space, the next question becomes: can freemium also work its magic with enterprise?

That was the theme of one breakfast roundtable earlier this morning at Fortune Brainstorm Tech, featuring Survey Monkey CEO Dave Goldberg, Ning CEO Jason Rosenthal, Index Ventures partner Mike Volpi, and ccLoop CEO Michael Wolfe.

"I don't think it's a business or a consumer thing," said Rosenthal, whose social media company (largely) pivoted from consumers to corporate customers, and in doing so, also switched from a mostly free ad-supported model to a an all-paid premium one. The gamble paid off: Ning went from just 17,000 paid customers last year to 100,000, and Rosenthal said during the panel that revenues are up 500% year-over-year.

The general consensus appeared to be a "freemium" model can work for business-focused companies and services, but only if it's structured just right. For Ning, the reason its free tier didn't work was because the company offered up too much value for free, a theme echoed by others in attendance, including Deep Nishar, LinkedIn (LNKD) Senior Vice President of Product and User Experience.

"[It doesn't work] if your value is very finite in terms of what you're giving users, and you don't draw the right boundary to get over that critical threshold," said Nishar. "I think there's a critical threshold issue, and if you give just enough of a taste of what's possible with that free model, then you can move people to freemium."

Dropbox came up several times during the discussion as a freemium-based success story. The popular file-syncing service co-founded by Drew Houston and Arash Ferdowsi recently reported 25 million users -- including businesses like United Airlines, Red Bull, and even Goldberg's Survey Monkey -- relying on a model where the first two gigabytes of storage is free, $9.99 a month for 50 GB, and $19.99 a month for 100 GB. Volpi says that model works because it's very simple, and each price plan represents a big step up in storage so users can easily justify ponying up more money. A company like Dropbox also doesn't give away too much utility for free because as he sees it, the more a company generally gives away gratis, the smaller their potential paid userbase becomes.

There isn't a "one-size fits all"-type freemium model to follow, but there are a few things to keep in mind. One idea to seriously avoid: giving users say, a 30-day limited-time free trial. Users are more comfortable eventually paying for services that say, offer additional features around a core utility, rather than having a short time frame to tinker with a product.

And while it may sound abstract, be prepared to experiment -- a lot.

Said Wolfe: "People don't behave the way you think they might, so you'll have to test everything."

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JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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