Jul
24
12



The key to freemium monetization

Nir Eyal posted on TechCrunch about Encouraging Users to Work for You

Several studies have shown that expending effort on a task seems to commit us to it…After a user has been triggered into action and duly rewarded, the investment phase is where the user is asked to do work and starts building commitment. It is here that the user is prompted to put something of value back into the system, typically in the form of time, money, physical effort, social capital, or personal data.

This pattern is the key to success in freemium businesses. One of our companies, Expensify, exemplifies this pattern well, but with a twist.

The Trigger

Expensify assuages the pain of filing expense reports and uses this animus to drive people to download their application.

The Reward

On open, the app encourages the user to photograph a receipt and then throw it away. A few seconds to a few minutes later, the receipt has been processed and is ready.

Once a user has uploaded a few receipts, the user creates a report and with the click of a button sends them to be approved. That’s it. And all of this can be done on a mobile phone. In fact, one of Expensify’s challenges is informing their million plus users about their web app.

 

 

In every great consumer product, there is magic – this easy expense process is Expensify’s magic. This ease of use drives word of mouth and soon a few cabals within teams or companies begin to use the product.

Returning Value

When a manager receives a report, he/she can easily approve or decline it; reimburse the expenses via direct deposit; and send to an accountant or Quickbooks. Unlike most freemium businesses, Expensify has to win over two customers: the report submitter and the manager/accountant.

But once two users in a team have switched, the account switches to paid. And then every team member contributes data in addition to their monthly fee.

The Process

No freemium business is perfect. The biggest challenge for most is optimizing the conversion funnels. But each one uses the same trick: find the trigger, deliver the reward quickly and ask for value in return.