Here’s a “side-effect” of the lock-in effect.
Think Dropbox and their “invite 5 friends, you get extra space for free”. We all thought it was smart but let’s think a bit deeper.
The discussion when it comes to offering freemium plans as a SaaS company revolves around “leechers” — it sounds bad but we’re facing the truth. By leechers I mean those who will abuse your free plan, therefore just adding to your expenses bill and not contributing anything to your company’s income.
It seems that SaaS owners are very aware of this consequence of freemium — sometimes even adamant about offering this plan. Yet at the same time the reaction in regards to Dropbox’s system is “wow! genius!”
There’s a risk in this referral system: that this person who invited all his others 5 peers is not actually bringing any quality leads. The whole deal is that you’re offering someone this system as
- They might not pay for it
- They bring 5 people
- At least 1 out of these 5 will pay for it, making up for the bill
But if we are to think about it, chances are none of these 5 people brought by a #1 person will turn into paying customers. That is, if #1 is a “serial leecher” i.e. the type of user who’s looking to get the most freemium he can get on the internet.
It’s the “network effect” in a possibly negative direction.
What happens then? Is it worth for Dropbox to accept this and move on, just for the sake of users? They know it better since they have data on their operating expenses — and I assume it does make sense. But maybe it won’t make sense for you.
Maybe you’ll be put in a position we can imagine Dropbox can get themselves into:
- Growing too much with not so many paying users
- Profits are going down
- Can’t acquire some other company so as to offer other core features
- At the same time, too big to be acquired by another, bigger company
The bottom line
Dropbox system was deemed as genius multiple times. It might be, but for them. Not for everyone. Mind this, please — like attracts like, so it applies to your users as well.
About Ch Daniel
I run Chagency_, an experiences design agency — we help SaaS CEOs reduce user churn. I write daily on this topic and in similar areas. Here are my best pieces.
If I’ve helped you, follow me here and reach out: LinkedIn | Twitter | Email | Quora | YouTube
I’ve also founded an app that went 0-200K users in its 1st year — chdaniel.com/app
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Illustration credits: Michael Chernykh
