See original post at cdixon.org – chris dixon’s blog:
Companies that employ the “freemium” business model give away a product or service for free and then charge for additional features. The freemium model has gotten more popular as the cost to deliver free services has dropped but the cost of employing sales and marketing people hasn’t. One of the hardest questions around freemium models is deciding how to divide free from paid features.
One particularly effective version of freemium is: “give away the diagnostic, sell the remedy.” The most striking example of this is anti-virus companies that give away free virus scans but charge for virus removers. In fact, this tactic works so well for anti-virus that it almost seems coercive (and indeed has been abused by “anti-spyware” software that, for example, started conflating cookies and viruses). But, in general, giving away a diagnostic seems like a reasonable way to demonstrate the effectiveness of a product while still being able to sell valuable additional features.
Selling the remedy has become increasingly popular with B2B companies. For example, recently a friend wanted to make sure his company’s (non-spam) e-mails weren’t getting blocked by spam filters, so he contacted a company that specializes in “email delivery optimization”. They ran a free test and reported back that his emails weren’t getting blocked. Two months later they called back and said “uh oh, your emails are getting blocked.” Sure enough his open rates had dropped and his anecdotal tests confirmed that his emails were being inaccurately labelled as spam. He now had confidence in the email delivery company’s technology, and was willing to pay them to fix his problem.