“Free for a few” ≠ Freemium: Socialcast’s take on the network effect

The success of any social tool hinges on the crucial network effect – the principle that a network becomes more valuable with each subsequent user. Twitter, for example, is much more interesting to the end-user when he or she follows 100 people rather than three or four. The same holds true for Enterprise social networks. The more minds that contribute data and conversations on a daily basis, the more valuable the tool becomes for every employee.

This is why companies such as ours have elected the Freemium business model. A hybrid of “free” and “premium,” the Freemium model is centered around a company offering a free tool with premium upgrades. Users can test a free version of some software with little risk and no cost. If they elect to upgrade, a financial transaction occurs. If not, the users can walk away and the vendor has not incurred much, if any, cost in the process. The entire goal of a Freemium model is to allow the best, most active customers who really value the software to surface themselves via continued network growth. As a network expands toward critical mass, software vendors can offer the additional features and support that a thriving client may desire – for a fee.

The Freemium model for Enterprise collaboration software only works when the network effect runs at full force. Limiting the network size to 10, 50 or even 100 users effectively destroys the singular most important driving factor of value-creation: more people in the network.

The problem with limiting the free network size is that the perceived success of the network will heavily depend on the activity of the chosen testers. If the first 50 users don’t value the tool, their company may squash the initiative altogether. At the same time, the first 50 users may be social media evangelists that demonstrate a false rate of network adoption and usage in a large company. In the Enterprise, a few dozen users likely doesn’t represent the entire corporate population. This is why we elected to offer our basic tool completely free after years of research.

Companies should test truly Freemium tools by creating networks that include employees from all levels and locations of the organization. If and when the network demonstrates value across the board, an upgrading decision can be made. Until then, we encourage you to take advantage of the “free” in “Freemium.”