The cheap Email Service Provider model [updated]

Email service providers have found a new way to acquire customers in the small business category by giving them a free taste. The “freemium” model, as it’s called, provides small businesses with free versions of an ESP’s services. The hope is that they will eventually become paying customers. Small business owner who doesn’t have time for a sales call or a demo, they want to see how the product works through real-life examples. This way he is reassured about spending on this product in the future.

Update: Cheap doesn’t equal demand

We learned that offering a cheap product does not necessarily equal a lot of demand. Being a few months further after the initial publishing of this article in December 2010 we learned that Senndo did not survive.

After the site went offline we contacted the founders. And they confirmed our suspicion. “Yes, it was an experiment, and we’ve shut it down.” said Manish, “It required a level of engineering investment we weren’t willing to make relative to initial response.”

Launched in April, its a small investment

The e-mail services provider Reachmail officially launched its freemium model for e-mail this April. After testing its beta for select new clients late in 2009. “It’s not a substantial investment for us. Our goal is goodwill, [with the hope that it] will grow into a paid account.” says John Murphy, president of ReachMail.

A tight budget initially put e-mail marketing out of reach, says Client Robion Manka. The free tool allows Manka to reach a target audience and expand the company’s client base through LinkedIn and forward-to-a-friend options. “This has helped us grow attendance to our conferences,” says Manka. She expects the growth of her business to allow her to move to the paid version next year.

90% of the customers don’t pay for our ESP services

A newcomer to the industry, Senndo launched in mid-October, claiming to be the first mass-market ESP that is chasing the mostly freemium model — with roughly 90% of its customers not expected to pay for its services.

Manish Vij, the founder and CEO of Senndo: “Our initial plan is to charge those with 10,000 recipients and above. We’re guessing the majority of our revenue will be upsell on a freemium model, with some advertising on the site contributing as well.” Vij points to the success of MailChimp’s free model, which launched in September 2009 and reports more than 450,000 users.

“You typically see the free models beat the paid models in many areas,” he says. “We think that’s the smartest strategy to go with now, as the market is more mature than it was 10 years ago.”

Documentary filmmaker P. Kerim Friedman, who runs Four Nine and a Half Pictures with his wife Shashwati Talukdar, says he was unhappy with paid models before turning to Senndo. One service had a difficult template system and squeezed the filmmakers’ budget too far.

Free  does not equal quality

Cautions David Daniels, CEO of the Relevancy Group, an e-mail marketing consultancy.

“Without price friction I worry that marketers will not be incented to do proper relevant marketing,” he says. “The price barrier to e-mail is low enough already and such a model may simply create more e-mail marketers that simply load lists and blast e-mails [which] can be costly to a marketer’s reputation if it is not done right.”

ESPs, though, find that this old-fashioned bit of marketing continues to work for their customer acquisition goals. Eric Groves, SVP of global market development at Constant Contact, which has offered a form of freemium since its founding in 2000, says a free sample goes a long way.

“It’s really giving them something that allows them to experience an ROI in the product or service you offer in the hopes that they will stay with you and eventually pay you something,” he says.

source: Direct Marketing News

About Jordie van Rijn

Jordie van Rijn is an independent email marketing consultant and Analyst. He is the Founder of Email Vendor Selection and specializes in smart email marketing, optimisation and RFP / vendor selection. Named on of "50 Online Marketing Influencers to Watch in 2016 " by Entrepreneur magazine.