Picture this: you're strolling through the grocery store and come across two products. One’s a box of cookies with a small sample attached to the outside, while the other’s a box of cookies that you can only buy in bulk.
Which one do you choose?
If you're like most people, you'd go for the sample. Well, that's the basic idea behind product-led growth and the freemium model.
Product-led growth and the freemium model are both popular strategies for acquiring customers, but while freemium relies on offering a limited version of a product for free, product-led growth focuses on providing users with a full-featured product that showcases the value of the product and encourages adoption.
So let’s break down both these strategies, the pros and cons of each, and why you should choose one or the other.
We’ll be covering:
- The main goal of product-led growth
- What’s the freemium model?
- The pros and cons of PLG vs. freemium
- Which one is right for you?
- Real-world examples of PLG and freemium
What’s the main goal of product-led growth?
Product-led growth (PLG) is a business strategy where the product itself is the primary means of acquiring, converting, and retaining customers. In other words, the product sells itself. The focus is on creating an exceptional product experience that drives adoption and expansion within an organization.
The goal of PLG is to create a self-sustaining engine that drives customer acquisition, retention, and expansion through the product itself. Essentially, you’re building a self-sustaining growth engine that's driven by customer satisfaction and loyalty.
By focusing on creating a great product experience and utilizing data you can attract new customers, keep them coming back for more, and turn them into advocates who spread the word about your product.
One great example of a company that's been successful with product-led growth is Slack. Instead of spending a ton of money on advertising and sales, they focused on creating a product that people love to use. By making it easy for teams to communicate and collaborate, they've built a loyal user base that keeps growing.
The main goal of product-led growth is to create a product that's so good, people can't help but use it and tell their friends about it. And many PLG companies often use free trials or freemium models to attract users to their product, as we'll explore in the next section.
So hold up, what’s the freemium model?
The freemium model is a pricing strategy where a company offers a basic version of their product for free, but charges for additional features or functionality. It's a way to get users hooked on a product before asking them to pay for it.
It's like a buffet where you get some delicious samples for free, but if you want the fancy stuff, you gotta pay up.
Let me give you an example. You know that dating app? Yeah, the one where you swipe right for love and left for eternal loneliness? Well, that's a perfect example of the freemium model.
You can create a profile, swipe through potential matches, and even chat with some of them for free. But if you want to see who liked your profile or get more matches, you gotta pay for the premium version. It's a sneaky little way to get you hooked and then make you pay for the good stuff.
But it's not just dating apps that use this model. Spotify, the music streaming service, also has a freemium model. You can listen to millions of songs for free, but you'll have to listen to ads and you can't skip tracks.
If you want to enjoy uninterrupted music and have the ability to skip songs, you'll have to pay for the premium version. It's like they're saying, "Hey, we'll let you listen to the Backstreet Boys for free, but if you want to skip to NSYNC, you gotta pay."
Now, I know what you're thinking. "But, Adam, why would anyone pay for something they can get for free?" Well, my friend, that's the beauty of the freemium model. By offering a free version, companies can attract a large user base and create brand loyalty. And once you're hooked on the product or service, you'll be more likely to pay for the premium version.
The pros and cons of PLG vs. freemium
Both PLG and freemium have their pros and cons. Let's take a closer look at each.
- Focuses on creating a great product experience.
- Drives customer acquisition and retention through the product itself.
- Helps companies to scale quickly.
- Requires a high level of investment in product development.
- Can be difficult to measure ROI.
- May not work for all types of products.
- Attracts users quickly and easily.
- Allows users to try out a product before buying.
- Generates revenue from both free and paid users.
- May attract low-quality users who have no intention of paying.
- Can be difficult to convert free users into paying users.
- May not be sustainable in the long run.
Which one is right for you?
Deciding between PLG and freemium is like choosing between chocolate and vanilla ice cream. Both are good, but which one is right for you? Well, it depends on your product and your audience. If you've got a killer product that people are dying to try out, then PLG might be the way to go. But if your product’s more complex and people need some time to get used to it, freemium might be a better fit.
Another thing to consider is your revenue model. If you're making money through subscriptions or recurring payments, then freemium might be a better fit. But if you're selling a one-time product, then PLG might be the way to go.
At the end of the day, there's no one-size-fits-all answer. You need to think about your product, your audience, and your revenue model. And if you're really stuck, just flip a coin. That's what I do when I can't decide between chocolate and vanilla ice cream - or mint choc chip, or toffee fudge, or… oh I need to stop!
Real-world examples of PLG and freemium
Let's take a look at a few real-world examples of PLG and freemium in action.
PLG example: Zoom
Zoom is a prime example of a company that uses PLG to drive growth. Its product is simple, easy to use, and delivers a great user experience. This has led to rapid adoption and expansion within organizations, making it one of the most popular video conferencing tools on the market.
Freemium example: Dropbox
Dropbox is a cloud storage company that offers users a free account with limited storage space, with the option to upgrade to a paid subscription for additional storage and features. The company's freemium model has been successful in attracting a large user base, with over 700 million registered users as of 2023.
By offering a free version of their service, Dropbox was able to gain widespread adoption and establish itself as a leader in the cloud storage market. As users' storage needs grew, many opted to upgrade to a paid subscription to access additional features such as more storage space, advanced security, and collaboration tools.
The success of Dropbox's freemium model has been attributed to the company's focus on providing a simple and intuitive user experience, as well as their ability to continually innovate and add new features to their service.
Product-led growth and the freemium model are two effective strategies for businesses to acquire and retain customers. PLG focuses on creating a great product experience that drives adoption and expansion within an organization, while freemium offers a basic version of a product for free, but charges for additional features or functionality.
Both strategies have pros and cons, and the decision of which one to choose depends on the product and audience. PLG may be better for killer products that people are dying to try out, while freemium may be more suitable for products that are more complex and require some time to get used to.
Whether you go for chocolate or vanilla ice cream, remember that the main goal is to create a product that's so good, people can't help but use it and tell their friends about it. So, don't be afraid to give away some samples, just make sure they're delicious!
Now if you’ll excuse me, I’m off to listen to some Backstreet Boys for the nostalgia. So, I’ll say bye bye bye…
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