29 Sep 2013, 22:07

Why Raygun is not free

When we released Raygun, one of the deliberate decisions was to not provide a ‘Free’ version (beyond the free trial that is!).

Many of our competitors do have a freemium model. They trumpet how many users they have, and yet I’m doubtful that some of them actually make very much money.

Here’s how I weigh freemium for Raygun.io:

Pros

  • You get a nice big vanity number of users.
  • Some of those users may one day start paying you, one day.
  • The user metric may assist in boosting valuation.
  • Some investors may see that number as validation of ‘traction’.
  • Some acquirers may see that as potential revenue being left on the table.

Cons:

  • Paying users are subsidising free users, lowering your margin.
  • While “software developers” is not a tiny market, it’s not a massive one either. With 1% paying we couldn’t end up with 1 million paying customers.1
  • It consumes a lot more time & effort in supporting Free users (and those who claim you could just offer no support… yeah… right).
  • We start paying attention on a number that doesn’t matter because it makes us feel good. Even if subconsciously.

As with most business decisions, I keep evaluating the freemium concept for Raygun.io. So far I’m still sticking with ‘no, it would not be a good idea’ for many of the reasons above.

I do suspect that having a lot of free loaders can play to your advantage in an exit negotiation. There is a revenue rainbow that can be sold: “If we just get 10% of those free loaders to pay we could make, like, a million dollars!”.[2] I often wonder if this sort of logic is why we see so many acquisitions in the tech sector and then we see that product get shut down 6-12 months later. They never do manage to catch that rainbow.[3]

Having a business focused on generating sales and supporting those paying users well is the fastest way to be a viable business. Surely if you’re wanting to depend on a service you’d want to ensure they’re going to be around for a while, being cash flow positive is one way to ensure that.

1 This would be a different story if our products were a consumer play.

[2] Interestingly we’ve found that it’s very rare to have users say we charge too much. Users fall into one of two camps typically: complaining that our product is not free, or a paying happily. While completely unscientific I believe this is also why you’ll never convert many the free loaders to paying – if they didn’t value you to start with, why would they start now?

[3] Others are clearly just acqui-hires, where they don’t care about the product and just want the team.