Will Freemium Services Help SMBs Recover?

The best price point is free. But we all know there’s really no such thing. So freemium has emerged as a favorite price point for SMB SaaS products. Broader than the SMB market, the behavioral economics of freemium can be seen in mobile gaming, where in-app-purchases represent a $70 billion market.

Back to SMBs, freemium likewise resonates for the famously cash-flow sensitive segment. Charter Communications has tapped into that with its latest bundle. Part altruistic and part opportunistic, it’s now offering a free month of Spectrum Business, which includes SMB internet, voice and television.

We say “part altruistic and part opportunistic,” as this is a common trend driving the Covid-era SMB support we’re seeing from SMB SaaS players, as well as tech giants like Google and Facebook. It’s the right thing to do in supporting troubled SMBs, while also keeping them alive to be future customers.

The opportunistic part also ties back to the freemium concept. Free service can hook in new SMBs and even get them to switch from other providers. Once there, some could convert to paid customers and carry a certain lifetime value that recoups the acquisition cost of giving away a free month.

To validate the above claim about freemium’s appeal to SMBs, Localogy’s recently-published Modern Commerce Monitor (MCM), Wave V shows its high acceptance. 63 percent of SMBs report that a free trial was critical to a purchase decision, whether that be a recurring subscription or a one-time buy.

 

As for the timing, Charter’s one-month offer seems aligned with where many SMBs are now. The 5.2 addendum to MCM reports that 33 percent will increase their operating budgets over the next 3 months. That puts a significant portion in the position to sustain paid Charter services after the first free month.   

In fairness to Charter, it’s not all opportunity. The altruistic angle is likely there too and the company is doing what it can to help the troubled SMB economy. We’ll track this as close as we can to see if there’s any discernable lift in Charter’s SMB business as the local commerce universe recovers.

More broadly speaking, our radar is up for similar freemium approaches to supporting the SMB road to recovery. We predict more moves like Charter’s free month — driven by a similar mix of altruism and opportunity, and validated by MCM data. The SMB landscape could certainly use it.

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