Terver: Hey hey! Guess who’s back? Guessing someone has finally fixed her phone
Didi: Interestingly, I’m currently using a broken phone. But I’ll do anything for Bantus, you know?
Terver: If you’re reading this Didi is currently talking about how she’s tired and has to wake up early – at 8pm in the evening!
Didi: Lmaooo. I have to wake up at 6am. But anyway, always glad to banter about marketing and product decisions. Terv, what are we talking about today?
Terver: You know I’m always tempted to say “try to take over the world” when you ask this.But before we start the conversation, I’d like to know what the best thing you saw in marketing this week was.
Didi: Thank you very much for that question. Favorite thing was interestingly a quote. It’s a Dutch proverb – “Trust arrives on foot, and leaves on a horseback”, and simply emphasizes the importance of guarding the trust consumers have in your product. Marketers are usually tasked with bridging trust with consumers but it’s easy to forget that it’s the responsibility of every part of the product experience – and where one falters, you chip away a bit of that earned trust.
Terver: Wow! Clicks fingers. So deep! Mine was an ad by a dating product (a scratch-off book) that ran a six minute commercial that was basically a product walkthrough. Broke every single rule in the book including showing and telling but by God I enjoyed every second of it
Terver: Now we can get into it. Today we’re talking about the state of freemium models in the world, specifically looking at Spotify and YouTube as case studies. A good place to start will be to explain what Freemium models are for the people Didi
Didi: Freemium models are essentially pricing models that allow your consumers to get a taste of your product. It’s like you give them one spoon, and they have to pay for the rest. Essentially, in a freemium model, your customer experiences your product and you can choose to give them a better experience when they pay, or a lot more offerings when they pay.
It’s not to be confused with free trials, wherein there is a time limit
Terver: Ahhh yes! I like the spoon analogy. I guess the key is to give just enough access so the user can start reaping the benefits, get hooked and upsell them to a premium version. Kind of like men and women that say they’re happy to be friends with benefits and then start pestering for a relationship.
Didi: LOL. So friends with benefits is a freemium model. True true.
Terver: LOL! it sure is
Didi: Fair enough. So going into it. Spotify implemented theirs by giving you a version where ads pop up in between songs. You also cannot download songs in the free version. Similar to YouTube but I believe there’s more to YouTube’s execution. Would you like to speak about that Terv?
Terver: You can’t put songs on repeat either
Didi: Can you put songs on repeat in premium? This is a discovery. The millennial in me manually “presses” it.
Terver: TBH YouTube is the reason we’re writing this and Spotify might catch a few strays. But the thing with a freemium model is it’s supposed to draw you in and give you a good experience. YouTube is now doing this thing where to punish customers for not upgrading to premium, you have to sit through sometimes back to back unskippable ads every few minutes. They also somehow managed to obliterate ad blockers functioning on their platform. But the problem is the main draw for upgrading to premium is that it’s ad free. I mean, there are add ons like YouTube music but no one really cares about that.
Didi: Yes, that’s something I’ve been thinking about. Freemium models try to show you there’s value and then compel you to upgrade. I believe the thing about YouTube is they’ve already spent years showing you value, so whether they frustrate you or not, you’re not going anywhere.
I wonder if YouTube really trying to get people to upgrade or if they just trying to monetize? Ads are most annoying when you’re playing music and you most likely have a separate music streaming platform.
Today, I was forced to sit through two 30-second ads and I was thinking about how numb I’ve become to the ads. I just tell myself – this too shall pass. My take is they’re trying to monetize the hell out of you non-paying users.
Terver: Ermm sorry, I think you mean us non-paying users. I agree that it might be more a monetisation play, but they just did a big song and dance about unlocking 100M premium users, which is 3.7% of their almost 3 billion user base. The kicker here is that the majority of those are one month free trials. All in all, I think this is a good time in the world for a rival to arise, because yes I want to consume content for free, but no I do not want to watch 15 ads in a 20 minute video.
Terver: I think the advertisers are the ones suffering because it’s so insufferable now that the audience is numb and annoyed
Didi: Ah yes, I’d love to read a case study on YouTube ads as an awareness/acquisition channel from an independent party. The point is there has to be a better way to show users why they should go premium, without bombarding them with ads.
One that comes to mind is imagine if YouTube made you pay for HD viewing? So freemium users can only watch in a lower resolution. Now tv has an option like that.
Terver: Now we’re talking! Whether it is longer form content, exclusives, they just need to build more exciting things and actually market those because all these upgrade for ad free version just feels like you’re trying to fight me and my grandmother told me to never run from a fight.
Didi: I’m screaming! Are there examples that come to mind on how some other brands have done it?
Terver: Mailchimp comes to mind. Their freemium approach is to allow users to have a basic account for up to 2,000 subscribers and 12,000 emails per month for free. It works because you sign up and get value for free, but as you grow there are more features that you both want and need like automations that the premium version now makes available for you
Didi: Exactly. Mailchimp actually does freemium brilliantly and something I’d like to call out is how they use the psychology of “sunk cost”. They’d have given you the opportunity to store your data, and build out templates. At the time you need to upgrade, you know you have a bit too much to lose and are compelled to pay and carry on. This just made me think about Twitter. As a free user, You cannot DM a non-follower in our dear Elon’s regime. So most times, people resort to looking for other channels to reach the user. What if, Twitter allowed you to send one or two DMs, then asked you to pay at some point. Depending on the conversation, it just might convert more, because people might have more to lose.
Terver: Yup! I totally agree. Elon’s approach is turning Twitter users into lurkers or creators, there’s hardly an engaged in-between audience on there and that makes the platform more dispensable
Didi: Except that all the gist is on there, so we can only beg him to preserve it for us.
Terver: Spotify isn’t as horrid as YouTube with the ads but my problem with them is how you can’t upgrade to a premium account in the app. For such a sophisticated company, it’s almost unbelievable.
Didi: I wonder why. Everything payment related has to be done on the web and it’s weird as hell. There has to be a reason, but unfortunately for us outsiders, we’ll never know.
Didi: I know Spotify’s premium subscribers are almost up to 50% of its entire user base and that’s a great, great conversion rate.
Terver: My best guess is it’s probably beef based on Apple music
Didi: Yes yes. Apple is petty like that.
Terver: But it’s terribly suboptimal and there has to be a way to fix this
Didi: Random thought yeah, I think being on Spotify premium is also a “cool thing” culturally. Being on YouTube premium isn’t.
Terver: If people take nothing else away from this and skim right to the end, what two things do they need to walk away with ?
Didi: I’ll say: Infuse sunk cost into the product experience. What I mean by that is it’s smart to allow customers to build things within your product that they wouldn’t want to lose when it’s time to upgrade.
Also, your beat-users-into-submission-with-ads tactic isn’t working because people become numb to things they experience everyday, so they’ll just get used to it and wind up not converting.
Terver: Ah! That’s right. People are more motivated by the pain of loss than the joy of gain, so baking in value is the way to go. BTW, there’s a petition to ban YouTube’s unskippable 15 second ads, not saying you should sign it, but here’s the link in case you wanted to *wink wink*
Didi: Lmaoooo! Until next time Bantus!
Terver: Sayonara!