Babbel dumps freemium for language learning: “it just doesn’t work”

Reposting my comment from TC:

I’m not convinced that Premium (or even Freemium) works all that well for most consumer products. Sure, there’s a few home runs, but on the whole, the numbers are just very hard to squeeze any money out of.

10% is a very high conversion rate. Typically, any Freemium (or plain Premium) product will have somewhere around 1% conversion rate. Let’s say you do really well and bring in 100′000 new potential users every single month (quite an achievement for any website, I’d say). With a 1% conversion rate, that’s 1′000 new paying users a month.

Consumers, however, typically aren’t very keen on paying much more than a few dollars a month (when they’re willing to pay a subscription at all, which is rarely) – let’s say they’re ok with paying $60 a year. That’s $5 a month.

So with that insanely high amount of incoming users, you’ll have a cumulative income adding $5k a month. That’s assuming there’s no attrition (good luck with that). Not much to celebrate. At that rate, assuming no attrition, it would take you 20 months before you even make $100k/m. With attrition, it’s fair to assume that consumers won’t stay for even that long, so actually you’ll stabilise around $25-50k/m. This is not too shabby for a lifestyle business, but if you’ve taken €1m of funding, that’s not really an option. Then again, the funding wasn’t from VCs, so maybe that’s ok.

There are always exceptions, things that hit a sweet spot and make crazy amounts of money from consumers. But those are very few and very far between. Can you think of any?

It's interesting that the article calls into question monetroization because they won't be making a significant amount of money given the team size.

Heading towards cash flow positive should always be an aim, I don't get how people think that not charging for something now will magically make the same people want to pay for it later, if anything the pricing structure should be there from the start, let users know that you have some value on offer with your service.