At the February Freemium Meetup, Melinda Wittstock, the CEO and founder of NewsiT, gave her insights about Freemium as a Business Model. Melinda has always been intrigued by what makes freemium models work – or not. She shared her expertise and lessons learned at NewsiT with more than one hundred Meetup people gathered at Dell.
Freemium is an amazing business model when it works – but often it doesn’t – Melinda Wittstock
Too many startups assume that if you follow the rules of Freemium 1.0, millions of dollars will be yours as you scale to IPO. Melinda Wittstock from NewsiT thought it would work, until it didn’t. NewsiT made a pivot that is now proving fortuitous and lucrative – and she talked about how to reinvent Freemium.
Freemium 1.0 Rules
- Build an awesomely cool product
- Attract a gazillion users by offering it for free
- Figure out a premium upgrade
- Make millions (of $)
- Flip or IPO to exit
OK, so what are the odds that your start-up is Instagram or Evernote? Freemium is an amazing business model when it works, and according to Melinda it can work out fine, but the odds are stacked against most mortals.
NewsiT is a mobile and social platform for verifying crowd-reported content for relevance and accuracy. When we first launched, we were all about building vibrant communities of interest around content creation and collaboration – so it made sense to be a consumer-facing free app. Of course, it was going to take off like wildfire, and we’d monetize with advertising and paid upgrades. We’d also assemble the very best from the crowd into meaningful high value pieces and sell to online news sites, TV stations and newspapers. Classic freemium.
You can’t just think, “My product is so awesome millions will use it and revenue will come!” – Melinda Wittstock
So NewsiT started as a consumer-facing free app Everything was well planned out. The team had a good strategy and proven expertise for kick-starting communities and getting traction. It all looked great. On paper. But still they couldn’t raise enough money to pull it off. On the East Coast, revenue is a prerequisite of a Series A round.
This is a business, so duh, start with the paying part – and work backwards from there. – Melinda Wittstock
PRE-PIVOT: build a community – POST-PIVOT: build on media outlets’ existing communities
Then came the epiphany – and the pivot. NewsiT is now a platform that is licensed not only to media, but to brands, advocacy groups, businesses and others – in essense, any organization that needs real-time information of relevance it can trust. “I thought, So duh, start with the paying part – and work backwards from there,” Melinda told the Meetup.
She thought “backwards” and focused first on what to sell. NewsiT went from a B2C model to a B2B – to C model. NewsiT had to think very clearly about what companies would pay for – and why. In practice, that translated into many weeks and months in a consultative sales process as they built their platform. Because the companies licensing NewsiT would be paying for the front-facing crowd-sourcing UI and processes as much as the backend algorithms, the team needed to understand how the free part would help the paying part…and how the paying part in return would help spread the free.
Melinda told the Meetup it is important for a company to know the ‘what keeps its customers awake at night’ pain. Put the revenue ahead of the cost, she said. Some companies may not know they need your solution yet, which is why start ups disrupt them, but the more you know about how your paying customers feel the more likely you will build something that they will be happy to pay for. A company can boost their revenue and/or reduce the costs by providing better service to their end users.
The NewsiT B2B Platform is consumer facing – and free to consumers
Now NewsiT is a mobile social platform that vets and verifies crowd-reported content in real time via algorithms, ratings and a reputational scoring process. NewsiT reconfigures original posts, tweets and other social media by weeding out elements of noise, repetition and inaccuracies. Users get relevant and trustworthy information. Users also get valuable connections with others who share their interests.
News sources need reliable content from credible sources, which NewsiT helps determine. – Melinda Wittstock
NewsiT figured out that in general brands, campaigns and media will pay for a reliable source of contextual information they can trust and is ready to publish… and a cost-effective solution to engage, retain and monetize individual ‘influencers’.
But none of that will likely work without a ‘free’ product for consumers. A high rate of customer acquisition is the key to building social communities.
Freemium: Users need Circles of Trust
In NewsiT’s case the free part is the “Communities of Interest” aspect of the mobile crowd-reporting interface. People connect with other people around interests they share and they can create and consume information within “Circles of Trust”. They can use the iPhone app (yes, it’s free too!) And coming soon they can access NewsiT via a software development kit (SDK or “devkit”) that advertisers can customize by style, topic and location.
Consumers can get the free product direct from NewsiT or via content partners. And this is where the potential of Freemium lies: users get a lot for free – relevant and reliable real-time information, a trusted connections and valuable conversations all for free.
Freemium: What might consumers be interested in paying for?
The traditional way to look at this would be to ask if there is a possible product enhancement a company could offer users. Maybe offering more cool features to premium paying customers (like the standard Freemium model used by Evernote or Hootsuite) might work, or offering gimmicks like special access an event (like an NPR type membership model –“I get everything for free but I can meet Steve Inskeep if I donate more money”). But at NewsiT, Melinda thinks the most freemium value comes from network effects – the interdependencies between users – and believes this is the way in which her platform can drive the most value for consumers as well as the businesses licensing the platform to better serve them.
Want to learn more about the Freemium Business Model for your business?
If you are in the Bay Area, join our monthly Freemium SF Bay Area Meetup for a chance to hear world-class speakers and make networking connections! If you can’t make it, you can always catch the summary, video and presentations.