When the Price Is Free(mium)

Radical idea: Aaron Levie, 26, is the CEO and cofounder of Box, an online file-sharing service in other words competing with large software firms for business clients. Box

In 2007, we made an interesting discovery at Box, the content-sharing company I run: our service aimed at consumers and small businesses was being used in big enterprises.

Four years later, Box is being actively used inside 100,000 businesses, including 82 percent of the Fortune 500, to share and manage files in the cloud. With more than eight million end users, Box is one of the fastest-growing enterprise apps of all time.

We tend to think of technological disruption as occurring when new products immediately enter a mainstream market after a fashion that incumbents can't compete with, more often than not because the newcomer offers some improvement in the underlying innovation. That is undoubtedly the case for cloud computing, which allows software to be delivered via the Internet. Nevertheless what we often miss about such innovations are the destabilizing business models they manifest. Such as devastating to incumbents as the new innovation: a new price point, and by extension, a fundamentally new means of adoption.

The case of Box

In the case of Box and other cloud startups, that pricing model is called "freemium." Freemium pricing is already familiar to consumers who use Flickr, Skype, Spotify, or Pandora. The idea is simple: users get a free "taste" of your research, often at the price of limited functions, limited capacity, or an abundance of advertising. With a premium subscription, you'll often see those limits nullified, ads vanish, and a handful of extra features introduced.

This change has broad implications. It means that new services can emerge and scale quickly, bypassing the rules that have traditionally governed how enterprise research is bought and sold. These apps find their way to the CIO's desk via his or her employees, not through a consulting engagement, a tedious sales cycle, or an existing licensing agreement.

With freemium, enterprise upstarts are turning the adoption and implementation process on its head, without having to compete head-on with the giants. By the time Box is talking to an IT buyer about replacing SharePoint or another legacy solution with our product, that company has already experienced our service through its employees. This means corporate clients are not paying until the service has been vetted and deemed successful by their own workers. Gone are the days of radically expensive, failed implementations of enterprise innovation.

I've been a Box.net user since the product's first availability. I'm owner of a consulting business with many, many irons in the fire -- and in this way, many people to stay in touch with. Sharing documents is one of the best ways to stay in touch, as the value-add exceeds an email's and there is a reciprocal obligation created to do the same. I didn't need to experience the "freemium" offering for more than a day to realize that an upgrade would be more than worthwhile. For all that, it might have been difficult for Aaron to explain that to me in an advertisement or press release. My Box.net experience made the difference. And I in turn introduced Box.net to many larger client organizations.Is the freemium brand introduction approach applicable across domains and product types? I can imagine many situations in which it would be nevertheless only a few in which it would not. A key question regarding freemium is how long the vendor can hold out with limited earnings and make the many changes required in the product or service, at least at the outset of its offering. One of the wisest things Box.net did was early-on to involve its clients in evolving the service by innovating uses and methods, in doing so hastening the improvement of the product and simultaneously sharing "ownership" with clients who at that time spread the news and the service. The other wise thing Box.net did was to keep the service on-point and simple. Thanks, Aaron, for a good show and a valuable addition to my company's worldwide reach and success.

"A key question regarding freemium is how long the vendor can hold out with limited earnings..."I think it would be worth knowing whether freemium models tend to destroy earnings overall in their categories.

Early adopter of social media

As an early adopter of social media and cloud based freemium tools I have explained to many of my friends and family that a major shift is happening and with it comes financial possibility. I explain that there was a time when people had the chance to get in on Microsoft and Apple in the early days. In my 20's I remember many people saying if I would have only known how big this would be I would have invested. Previously the late 80's no one believed that the PC or a company like Microsoft could become the standard for business computing. No one would have imagined that Apple would be a larger player in the consumer electronics market than Sony. The tools weren't powerful enough, there were too many gaps, the large incumbents had to much power.This is a cycle repeating itself, you can learn and adapt now or just be late...again.