Freemium will fuel the enterprise

By Ping Li, contributor

It usually is an individual employee who finds and downloads the enterprise software that boosts his or her company’s productivity curve. It could be a staff accountant. It could be a marketing assistant. It could be a back-office HR person. The trick for enterprise software developers is hooking them.

Conventional enterprise software was known for catering to top-level managers, rather than to the workers who actually use it. Now that the paradigm has shifted, enterprise vendors must remember how their new target audience adopts technology — self-empowered, value-driven, “do-it-yourself” and social. These are “consumer-workers,” and they’re used to slick, easy-to-use web and mobile applications and services like Facebook, Angry Birds and iTunes.

Intersecting the consumer-worker is the new strategy for the discovery and implementation of enterprise software. By targeting the behaviors workers have developed as consumers to find their favorite music, games and apps online, vendors can achieve grassroots adoption.

With cloud computing and downloadable applications, developers can build more viral hooks into the product and push out a series of sometimes-trivial product features that ultimately evolve into a platform over time. Each bite-sized product feature delivers high and immediate value that drives deeper engagement and usage on the software platform. In many ways, it’s not too different than playing a Zynga social game where each little action sucks you in more and before you know it, you have spent many hours and dollars.

Smart software vendors will take advantage of social and professional networking sites to target suitable consumer-workers. Much like security software maker AVG would target the tech-head in a family and anticipate him or her installing its antivirus product on relatives’ machines, enterprise developers can expect the right user to extol a useful application across their social and professional graphs.

Then the challenge is finding a way to get businesses to put money behind these early adopters. Monetization schemes must reconcile lower price points with a higher velocity, higher-volume sales agenda. A few companies (including a couple Accel portfolio companies) are notable in their execution of “freemium” strategies and can serve as good models for new entrants:

• SurveyMonkey (tiered pricing based on feature set) have excelled at baiting businesses with quality, baseline feature sets – giving away “just enough” to keep a user on the platform till they’re able to outgrow the entry version.

• Solarwinds’ infrastructure management software embraces a “freeware” model where certain products are always free to attract many users while other products are offered for as paid or a free trial period with access to full functionality for a limited portion of your infrastructure, while ultimately converting users at a low enough price point that easily passes the sniff test of departmental budgets.

• Dropbox’s “pay-for-consumption” model perfectly complements the lifecycle of its users, who eventually reach a natural conversion point upon reaching their storage limits.

• Yammer, perhaps best invokes a grassroots sales model, encouraging critical mass at the employee level (offering it for free), thereby forcing businesses to pay per seat for an additional management and compliance layer once enough of their employees are being hosted. While some may call this “forcing management’s hand,” I elect to call it smart.
• Atlassian has found a way to virally penetrate the developer landscape, offering lightweight, downloadable tools that developers end up deploying en masse. Eager to support developer autonomy, managers adopt their employees’ tools of choice, giving Atlassian budget-level support for expanding within the organization.

Software vendors looking to this lucrative market should understand these existing successes in product architecture, marketing and monetization. The one tenet seemingly underscoring all three is simplicity.

Of course, not all enterprise software products fit this business model, and those that don’t can still be successful – but they, too, can learn from these models and from the rising consumer-worker. Today’s sophisticated, web-enabled solution-seeker demands the functionality and cost-effectiveness of their off-the-clock applications. It’s as simple as that.

Ping Li (@ping_accel) is a Silicon Valley-based partner with Accel Partners, a venture capital firm whose investments include Angry Birds, Atlassian, Facebook and Dropbox.