Ning, School Loop, and the Art of Supporting a Freemium Model

May 18, 2010

Ning-logo

Ning, an online platform for building your own social networks, made headlines recently when they announced they would be phasing out their free product and cutting 40% of their staff. The basic problem, as new CEO Jason Rosenthal explained in an email to the company, was that their free service was costing them a lot of money but not giving them any money in return.

Ah, the debate over Freemium (a business model that works by offering basic services for free, while charging a premium for advanced or special features). Everyone from 37signals to the Huffington Post to the Wall St. Journal jumped into the fray after Ning’s announcement, all asking: Is Free Dead? (Or, in 37signals case: was it ever alive?)

While that debate rages on around us, we’d like to step aside and ask a related question: how much support should you give a free product? Let’s assume that a free model works for some and doesn’t work for others – either way, you will need to figure out how much of your support resources you will make available to your non-paying customers.

Free Support?

School LoopWe recently talked to one of our customers — School Loop — who asked that same question about their own service.

School Loop is an online service that helps K-12 districts keep students in school and on track. Founded by a teacher in 2004, now more than 2,000 schools in 120 districts across 25 states use School Loop’s services. Faced with mounting support tickets as they grew, School Loop turned to Zendesk to help them manage; they have been quite happy. “Our support staff hated using our previous system,” Bob Charpentier, Director of Services recalls. “With Zendesk, their attitude has completely changed. Zendesk is easier to use, more reliable, and less expensive. It was a no-brainer to make the switch.”

Along with making the switch to Zendesk to streamline their help desk, Charpentier also began to wonder how much of their support time was spent on their free product. Like a lot of web-based software, School Loop offers both a free and a premium version – this freemium model allows schools to start out with the service at no cost and hopefully migrate to a premium service as their needs grow. (In the case of Ning, of course, not enough accounts migrated from free to premium.)

Using a combination of tags and Zendesk reports, Charpentier started tracking how many of his requests came in from the free accounts vs. the premium ones. While he is committed to offering great support to all his customers, he also needed to understand the business realities.

To his surprise, only a fraction of his support time was being spent on free accounts. He figured the benefits of supporting his free accounts far outweighed the costs as represented by the reports he ran in Zendesk. As long as they aren’t putting an inordinate strain on his support resources, supporting the free accounts increases the chances that as they grow and need more services, they’ll be loyal and upgrade their School Loop account. And they are more apt to spread the good news about School Loop to other potential premium customers.

The debate over a free-based business model is interesting and complex (for a great exchange on this, we recommend checking out Malcolm Gladwell’s review of Chris Anderson’s book Free: The Future of a Radical Price; and Seth Godin’s response); and how to handle a Freemium business model is maybe even more fraught (as Ning has proved); but on the other side, we love cases like School Loop – companies with a great product offering great support who also keep tabs on the cost of Free.