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ESPs turn to ‘freemium’ models to help upsell budget-conscious businesses

E-mail service providers have found a new way to acquire customers in the small business category, a cost-conscious group, by way of an age-old marketing tactic: free samples. The “freemium” model, as it’s called, provides small businesses with free versions of an ESP’s services with the hope that they will eventually become paying customers. The model works, say ESPs, because the busy small business owner who doesn’t have time for a sales call or a demo, gets to see how the product works through real-life examples and is reassured about spending on this product in the future.

In April, ReachMail e-mail services provider officially launched its freemium model for e-mail, after testing its beta for select new clients late in 2009. “It’s not a substantial investment for us,” says John Murphy, president of ReachMail. “Our goal is goodwill, [with the hope that it] will grow into a paid account.”

ReachMail freemium client Robin Manka, marketing manager of Scope West and Scope East, a company that handles supply chain executive events, says a tight budget initially put e-mail marketing out of reach. The free ReachMail tool allows Manka to reach a target audience, expand the company’s client base through LinkedIn and forward-to-a-friend options built into the system. She also praised the metric reports and the template as easy to use. 

“This has helped us grow attendance to our conferences,” says Manka. 

Scope West and Scope East began using the free model last year. Manka says she expects the growth of her business to allow her to move to the paid version next year. 

A newcomer to the industry, Senndo launched in mid-October, claiming to be the first mass-market ESP that is chasing the mostly freemium model — with roughly 90% of its customers not expected to pay for its services.

“Our initial plan is to charge those with 10,000 recipients and above,” says Manish Vij, founder and CEO of Senndo. “We’re guessing the majority of our revenue will be upsell on a freemium model, with some advertising on the site contributing as well.”

Vij points to the success of Hotmail as a model for the ESPs to duplicate for the small business market. He also praises MailChimp’s free model, which launched in September 2009 and reports more than 450,000 users.

“You typically see the free models beat the paid models in many areas,” he says. “We think that’s the smartest strategy to go with now, as the market is more mature than it was 10 years ago.”

Documentary filmmaker P. Kerim Friedman, who runs Four Nine and a Half Pictures with his wife Shashwati
Talukdar, says he was unhappy with paid models before turning to Senndo. One service had a difficult template system and squeezed the filmmakers’ budget too far. 

“Every time I sent out a newsletter, I ended up wasting a lot of time hand-coding the HTML because the pre-made templates didn’t work the way I wanted them to,” he says. “I was intrigued when Manish said that Senndo was focused on creative types and had a nice selection of easy to use templates. Not to mention the fact that it’s free.”

Free, though, does not equal quality, cautions David Daniels, CEO of the Relevancy Group, an e-mail marketing consultancy. 

“Without price friction I worry that marketers will not be incented to do proper relevant marketing,” he says. “The price barrier to e-mail is low enough already and such a model may simply create more e-mail marketers that simply load lists and blast e-mails [which] can be costly to a marketer’s reputation if it is not done right.”

ESPs, though, find that this old-fashioned bit of marketing continues to work for their customer acquisition goals. Eric Groves, SVP of global market development at Constant Contact, which has offered a form of freemium since its founding in 2000, says a free sample goes a long way. 

“It’s really giving them something that allows them to experience an ROI in the product or service you offer in the hopes that they will stay with you and eventually pay you something,” he says.

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