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How the Freemium Model Outflanks the ROI Question

2014-21-May-DJ.jpgNobody goes to the store (or these days, iTunes) specifically to buy an obnoxiously catchy pop song that they’ve never heard before. Chances are they’ve heard it for free somewhere first. No offense to Pandora and Spotify, but let’s call this the radio model. A song is played for free, the listener likes it, and only then makes a buying decision. This is actually a very good description of how and why enterprise social network licenses get purchased, and a telling factor in why social ROI is a fool’s game.

After all, you can’t measure the value of a pop song. It makes you happy, sure. And we all know you can work better, run faster and just in general be more successful when you’re happy … but good luck trying to prove any of that.

The Freemium Model as Flanking Maneuver

Like hit singles, the best enterprise social networks got their start with a freemium model. This enabled software companies to get around difficult ROI conversations and sell their product in organizations that suddenly couldn’t live without it. Three great examples spring immediately to mind — not coincidentally, three of the leaders in the market.

Yammer offered free online signup and a sort of shadow-corporate-network mentality, based off users’ actual email addresses, long before it was acquired by Microsoft. Salesforce made Chatter freely available to all users in enterprises that had any number of licenses for other Force.com solutions. It’s not unknown for IBM to heavily discount Connections licenses when companies are biting off big chunks of Websphere Portal.

Why?

Part of it is genius marketing, sure. Part of it was the classic tobacco industry mentality of getting people hooked before you get them to pay. But part of it is because internal social networks needed that freemium model to survive in the first place. It represented an irreplaceable component of social networking adoption — because nobody would buy the darn things otherwise. CIOs have traditionally wanted to see ROI for anything they’d purchase, and ROI is the one thing that’s notoriously challenging for enterprise social software. The same was true for its immediate predecessor — document collaboration.

The good news for enterprise social vendors is that they learned from the mistakes made with the last generation of collaboration tools. They didn’t take the ROI issue head-on. Instead, they went around it. Why? Because they figured out that while the anecdotal, intrinsic benefits of collaboration tools are inescapable, you can’t prove social ROI numerically — so they stopped trying. They played to their strengths. That’s what freemium networks are about: Getting tools in the hands of users who quickly find them so invaluable that they can’t live without them.

Collaboration Success: You Can’t Measure the Truth

Social networks, like their predecessors, tend to resist anything but the most basic analytics. You can’t create a neat little ROI model. You have to attach context to any numeric measurement because without that context, the numbers aren’t always very persuasive. The evidence is almost purely qualitative.

Ten years ago, a great many really bright consultants spent a great deal of really expensive hours coming up with arcane theories and algorithms to prove the value of really interesting ideas like document collaboration and enterprise search. Ideas like “if N number of people collaborate together on a given document, it saves them X hours per week of communication."  Therefore,

  • When N = average number of people working together on a document
  • and X = hours per week saved
  • and D = every document created by the organization
  • and c = Average hourly cost of an information worker
  • then D(c[N*X]) = Total cost savings of a collaboration tool

Of course, we now publicly admit something that many of us quietly whispered among ourselves even as we were devising these equations 10 years ago … namely, that this approach is patently ridiculous.

It’s an attempt to quantify something we all know is good and beneficial but has, for all practical intents and purposes, proven impossible to place a numeric value on. Oh, it’s all well and good for a CIO to assemble a prospective budget based on this sort of thinking. He or she can hang his or her proverbial hat on the idea that the organization saved some massive number of dollars on his her or her watch because he or she rolled out a collaboration/social networking/enterprise search solution. Those numbers rarely hold up to scrutiny.

Sit Back, Relax and Collaborate

Just as rarely, however, do you find employees who say they want to go back to the days before they had IM and a social network for quick Q&A or expert location, or dozens of file versions stored in a shared drive or (heaven forbid) reply-all email chains, or worst of all before email itself. At that point it becomes less about proving ROI and far, far more about incurring significant costs in attrition, attractiveness, efficiency and employee satisfaction by trying to stuff all of Pandora’s little social networking demons back in the box. And nobody wants to do that.

 

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