Open Source Software companies give the software away for free. They hope to make money by selling maintenance, support, training, and consulting. How many free users actually pay for service?
David Skok from Matrix Partners did a presentation at the Open Source Business Conference on the Open Source business model. David Skok has invested in several OSS companies including JBoss. He knows the business well.
According to Skok, business users of Open Source Software want professional customer support and are willing to pay for it. Consumer users are less likely to pay for support. On average about 3% of all OSS users pay for a support contract.
This correlates with my findings on "Freemium" conversion rates where the average conversion rate was also 3%. The Freemium model, popularized by Fred Wilson, is where a service is offered for "free" with additional "premium" services offered for a fee.
I remember many years ago talking to a bulk mail list company about response rates to targeted mailings...the same result...about 3%.
Maybe it is just a strange coincidence. Every product is different. The value propositions are different, the prices are very different, and the competitive environment is different. But, the results are strangely the same.
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Don,
Just for factual accuracy, that 3% mailing response rate the bulk mail company quoted you was a simplistic and misleading generality; and one which has unfortunately become something of a "business urban legend" over the many decades it's been bandied about...
In actuality, mail response rates can, hard as it may be to believe, range anywhere from 0% (where no one you mailed to wants what you've got for the price you want to sell it for) all the way up to 100% response (where everyone does; generally a lead-gen mailing to existing good customers which includes something of great [or at least perceived to be so] value in exchange for responding).
In many B2B product or service offerings; where sales prices are often $25,000-$250,000 and up; response rates as low as .01% may be wildly profitable...while lead generation mailings (and especially where at least one of the response options is to register at a web site) often produce rates of 10-30% or more.
So we see that the mailing marketplace is much like paid search: Knowing the response rate without tying it to the ROI rate is of little practical value.
Posted by: Steve Morsa | June 03, 2007 at 08:52 PM
Don,
I run a subscription database that tracks venture capital industry transactions.
8% of people who sign up for a free trial go on to pay for a subscription.
Glad it's better than 3%...
Posted by: Don Jones | June 04, 2007 at 11:03 PM