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CONDUCTING B2B SAAS BUSINESS WITH A FREEMIUM MODEL: A CASE STUDY

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Abstract

This article studies what are the characteristics of a B2B SaaS free-mium firm. Freemium in a B2B setting is an under-explored phenomenon whereas B2C SaaS freemium has been studied extensively. On the consumer side freemium has played a big role but freemium has only recently started to enter the B2B environment. Traditional, sales-led B2B SaaS companies have increasingly begun to turn to freemium and hence, it is important to understand how do they go about it. The empirical qualitative research was conducted as a case study and the data was gathered by interviewing European B2B SaaS freemium businesses. The data was analysed using qualitative thematic analysis and the coding approach used for identifying the concepts was open coding and axial coding. From the data three main success factor themes emerged that were evident in the B2B environment: customer success, internal enablers and external enablers.
CONDUCTING B2B SAAS BUSINESS WITH A
FREEMIUM MODEL: A CASE STUDY
Teemu Nieminen, Rahul Mohanani [0000- 0001-7018-8836] and
Pekka Abrahamsson [0000-0002-4360-2226]
University of Jyväskylä, Seminaarinkatu 15, 40014 Finland
teemu.mi.nieminen@gmail.com, rahul.p.mohanani@jyu.fi,
pekka.abrahamsson@jyu.fi
Abstract. This article studies what are the characteristics of a B2B SaaS free-
mium firm. Freemium in a B2B setting is an under-explored phenomenon
whereas B2C SaaS freemium has been studied extensively. On the consumer side
freemium has played a big role but freemium has only recently started to enter
the B2B environment. Traditional, sales-led B2B SaaS companies have increas-
ingly begun to turn to freemium and hence, it is important to understand how do
they go about it. The empirical qualitative research was conducted as a case study
and the data was gathered by interviewing European B2B SaaS freemium busi-
nesses. The data was analysed using qualitative thematic analysis and the coding
approach used for identifying the concepts was open coding and axial coding.
From the data three main success factor themes emerged that were evident in the
B2B environment: customer success, internal enablers and external enablers.
Keywords: SaaS, Software-as-a-Service, Freemium
1 Introduction
Software-as-a-service (SaaS) has become one of the go-to business models of the past
decade (Bhardwaj, Jain, & Jain, 2010; Satyanarayana, 2012; Elsayed & Zulkernine,
2019) and given the surge of the SaaS model, academia has taken note of the factors
driving their success (Walther, Plank, Eymann, Singh & Phadke, 2012). Naturally,
SaaS has attracted attention from academics but thus far the B2C side of SaaS h as re-
ceived of the majority of the attention, especially in the freemium space (Shankar, Attri
& Vigneswara Ilavarasan, 2021). A basic definition of a freemium service is that it
describes a business model in which the service provider uses a combination o f two
products and services. One item is completely free of charge while a complementary
item is sold at a profit (Pujol, 2010). In the freemium business model customers get a
sort of restricted or a basic version of the application for free.
On top of studying the best practices, this paper will contribute to the Information
Systems (IS) theory and fill the area that has been under-explored in the IS literature.
To find answers and best practices in such an under-explored area academic-wise, one
ought to interview B2B SaaS freemium firms. Knowing how B2B freemium companies
conduct business, it is possible to form the main characteristics of the B2B freemium
2
business and answer the research question. The research question that this paper an-
swers is: “How to characterise a B2B freemium model?
2 Theoretical background
2.1 Freemium business model
A SaaS provider seeks to persuade the freemium version users to convert into paying
ones by offering them more advanced versions of the application (Holm & nzel-
Jensen, 2017). This demand can be done through, for example, making the application
a bit inconvenient to use without a payment (Hamari, Hanner & Koivisto 2020).
Seufert (2013) claims that even though the freemium business model does not have
fixed rules or boundaries, it is composed of three design elements or trends that are
fundamental for all freemium products. Firstly, the wider the applicability of the prod-
uct, the broader the likely user base is. Kumar (2014) even goes as far as saying that
the sole point of having a freemium service at place is to generate as much traffic to-
wards your service as possible. Seufert (2013) asserts a SaaS must, just like any other
service, sooth a pain of a customer and have a clear use case. In contrast with a regular
SaaS, a freemium service should have a potential to be used for a wide range of pur-
poses and this virtue is something all freemium service designers covet. The second
element is that only a handful of all freemium users ever convert into paying customers.
Of the total user base of a freemium product only about five percent are paying cus-
tomers. It is extremely difficult to monetise the users of a freemium product and that is
why it is so popular to make the service as widely applicable as possible. The third
element is that a small number of users spend immense amounts of money within the
product.
2.2 Freemium in B2B
The popularity of the freemium business model has been rising especially among the
companies in the gaming industry for quite some time now (Evans, 2016; Hamari, Han-
ner & Koivisto, 2017; Montag, Lachmann, Herrlich & Zweig, 2019). The phenomenon
has been widely researched in the games industry and some of these learnings can be
utilised in other freemium markets.
There is not much to say about previous studies regarding freemium in the B2B en-
vironment. The study by Wagner, Benlian & Hess (2014) laments that there are simply
too few studies focusing on the B2B side of freemium.
2.3 Success factors of freemium
For the purpose of this paper, it would be useful to bear in mind the nuance distinctions
between the success factors of a regular SaaS and a freemium SaaS. Some research, for
example Satyanarayana (2012), state that the success of a SaaS provider is heavily
linked with the success of the customers of the provider. More than one research paper
3
argue (Maltz & Barney, 2012; Holm & Günzel-Jensen, 2017) that freemium only works
for products that have a massive market because of the extremely low conversion rate
(the five percent rule). The authors say a freemium service providers success is tied to
attracting a massive amount of freemium users. Some related studies (such as Maltz &
Barney, 2012) also argue that one of the keys to success in a freemium business model
is to keep the marginal costs low and minimise marketing and sales expenses.
The literature (Hamari, Hanner & Koivisto 2020; Shankar, Attri & Vigneswara
Ilavarasan, 2021) notes that customer satisfaction and good user experience are critical
for the success of freemium providers. The research by Maltz & Barney (2012) support
this sentiment: their research says a freemium vendor should steer its business through
the heavy utilisation of data, more specifically cohort data. The research argues that
freemium customers might use the service for free for years before they turn into paying
customers. The only way to measure and determine that a freemium user is on the path
towards conversion is through cohort data.
Holm & Günzel-Jensen (2017) have found there are also nine strategical choices for
freemium vendors that are integral in their aspirations for success: 1) maintain high
value in both the free and premium offerings, 2) strike a balance between free and pre-
mium offerings, 3) maximise the value from free users, 4) mine user behaviour data, 5)
take advantage of social media, 6) exploit well-established market players, 7) mind the
costs of free-user management, 8) internationalise, 9) acquire new technologies through
mergers and acquisitions.
Seufert (2013) writes that freemium services must be able to accommodate massive
scaling so that a desired level of adoption can be met to drive revenue. The character-
istics of a product that facilitates massive scale are low marginal distribution and pro-
duction costs.In addition, the study found that insight is just as important as scale. In
the context of freemium SaaS, insight refers to the freemium product’s entire data sup-
ply chain. From data, developers gain valuable knowledge on what works and what to
change. Everything in freemium revolves around monetisation since a paying customer
is essentially buying an enhanced experience compared to the free one. Finally, the
study concludes that the faster a freemium service is optimised based on the prior
points, the faster the vendor can harvest the fruits of the labour. Optimisation in the
freemium context means the process of translating data of user behaviour into product
improvements that have a positive effect on a certain performance metric.
3 Research approach
The research was of qualitative nature as getting access to the data requires interviewing
converted freemium users. Qualitative research methods in general enable researchers
to examine complex phenomena in their social and cultural context (Myers, 1997).
Google and LinkedIn were used to search for B2B SaaS firms who have a freemium
service. After identifying these firms, they will be contacted. From then on, interview
questions and topics were crafted based on the literature’s views on success factors for
freemium business.
4
The aim of this study is to find regularities and generalisability in the answers of the
interviewees. Thus, data will be analysed systematically in an iterative manner using
open coding and axial coding. Axial coding is used to synthesise and organise data into
structured categories and subcategories and discover their potential relationship to one
another (Scott & Medaugh, 2017).
Four European B2B SaaS freemium service providers were interviewed for this
study. The interviews were unstructured in nature and contained of open-ended ques-
tions. The interview topics were based on the findings from the theory part of the study.
The data was analysed using qualitative thematic analysis. The aim of the theming
was to identify central concepts from the data. Thematic analysis was used to find out
how the B2B SaaS freemium businesses in the sample described their ways to conduct
freemium business in a B2B environment. The coding approach used for identifying
the concepts was open coding and axial coding. Khandkar (2009) illuminates this type
of process as something that will make the concepts emerge from the raw data and then
later grouped into conceptual categories. Khandkar (2009) continues by arguing that
the validity of the analysis stands on a firm ground because it builds directly from the
raw data. To form the list of common themes, the interviewees’ answers were gone
through to find what kind of commonalities they described in their practices when striv-
ing towards fulfilling these basic tenets of B2B freemium.
4 Findings
Altogether nine primary empirical conclusions were found when the empirical data was
analysed. The complete framework of the success factor themes of B2B freemium is
presented in Figure 1.
Table 1. Primary empirical conclusions from the data
IDENTIFIER
EMPIRICAL CONCLUSIONS
PEC1
B2B SaaS firms usually approach business from a sales-led per-
spective but invest in freemium services when they want to ex-
pand into bigger markets, achieve better scalability, differentiate
from competitors and bring in SME customers. Turning profit is
difficult and can lead to internal bickering.
PEC2
Sales-led B2B SaaS providers who created a freemium version
of their product see freemium as a feature that enables them to
pursue product-led growth strategy. Their decisions are not al-
ways based on data and the new service is often under-resourced.
PEC3
Freemium itself serves as a marketing tool but B2B freemium
providers also create original content and, with clever targeting,
use ads to lure in new users. Providers must excel at SEO and get
satisfied customers into writing favourable reviews. A big mar-
ket underpins the potential for success.
PEC4
B2B freemium providers do not give freemium users access to
integrations but they play an important role in converting
5
freemium users into premium ones. Integration projects are
started only when premium customers express interest in them.
PEC5
M&A is difficult and a resource consuming way to acquire new
features and customers and hence, it is not seen as an important
way to expand ones B2B SaaS freemium business.
PEC6
All users go through a sign-up flow and receive limited premium
time. Data is constantly gathered of users, of their actions,
choices as well as their predilections. The teams running the data
handle it delicately and they are given adequate resources.
PEC7
The most efficient way to boost conversion is to focus on the free
trial period and tailor the content for a given user. Data should
determine lead qualification and the development of the product.
The product itself should be able to do sales in an automatised
way.
PEC8
The content that is used for driving traffic to the website should
be in English to reach as wide an audience as possible. English
content helps expand internationally. Websites should be opti-
mised for different ICPs and B2B freemium providers ought to
have ICPs separately for users and companies.
PEC9
Executives should be held accountable for the costs their opera-
tions incur to the business and only engage in business acts when
the return is manifold compared to the costs incurred by them.
Fig. 1. Success factor themes of B2B freemium
5 Discussion
The goal of this study was to shed light on the under-explored area of IS literature that
is B2B SaaS freemium business. The empirical evidence is testament to the fact that
6
there are differences between the explored B2C freemium business and B2B freemium
business models. On the practical side, this study aimed to highlight the characteristics
of a B2B SaaS freemium model and how it differs from the B2C one.
Table 2. Practical implications of primary conclusions
IDENTIFIER
IMPLICATION FOR PRACTICE
PEC1
Executives of a sales-led B2B SaaS vendor should examine their rea-
soning and commitment to freemium if they switch from sales-led
growth model to product-led growth model.
PEC2
B2B SaaS firms making the switch should allocate adequate resources
to the development of their freemium service.
PEC3
B2B freemium providers should make sure their potential market is
vast and invest heavily in marketing from making sure the word of
the service travels to create content to targeted advertisement.
PEC4
Developing integrations is necessary but B2B freemium providers
should ask the premium customers what integrations should be devel-
oped.
PEC5
B2B freemium vendors have better things to do with their resources
than pursuing ostentatious M&A projects.
PEC6
A limited time free trial with all premium perks should be provided
for new users. Data of all users should be gathered at all times and the
data should steer the development of the freemium service.
PEC7
B2B freemium service providers should target user and website visi-
tors with tailored content. The product should perform sales in an au-
tomatised way if it spots an opportunity for expansion sales.
PEC8
B2B freemium companies should create content first in English as it
helps reaching international markets. They should create and con-
stantly hone ICPs for both company and user profiles to aid in target-
ing them more precisely.
PEC9
B2B freemium firms should not commit themselves to business deci-
sions without a proper due diligence of the costs and probable returns.
6 Threats to validity
The first thing to keep in mind about this paper’s validity is the lack of prior literature.
There were few articles of the topic to draw inspiration and direction from and it mas-
sively affected on the focus of the paper. There might be considerations that have not
come up to mind when, for example, crafting the research question or interview themes.
The most striking limitation of this study is the size of the data sample. The ability to
make wide conclusions for the whole the sphere of business on the topic requires more
data. There might be quite a few companies around the world who conduct their B2B
SaaS freemium operations in a very different manner than the ones interviewed for this
study and thus, hampers the generalisability of the findings of this paper.
7
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