Giving away some of what you do for nothing may be a smarter growth strategy than it sounds.

By Rich Freeman

Early this year, Brad Kendall, an MSP in Selkirk, Manitoba, was struck by inspiration. Many software-as-a-service vendors offer both a free, entry-level version of their product and a fee-based, premium edition with more features and support. So, he thought, why couldn’t his company, CCR Technology Group, do the same? “It just seemed like an interesting model,” Kendall says.

What followed was a series of experiments. First he tried giving away a complete managed service plan for six months. Next he tried providing remote monitoring and support for free, but billing for on-site visits. The results both times were disappointing. “We just couldn’t get the clients to upgrade,” Kendall recalls.

Then he tried something new. He would monitor a customer’s network indefinitely for nothing. But every time he had to do something, like apply a patch or update anti-virus software, he charged a fee—even if his remote monitoring and management system did the work for him automatically.

From one perspective, that scheme worked no better than its predecessors: Only 3 percent of Kendall’s “free” customers ultimately moved up to full-fledged managed service contracts. On the other hand, since his RMM vendor was charging him just 20 cents per desktop per month, he didn’t need a lot of upgrades to turn a profit. “It’s actually a very good model for us,” he says. “Everyone likes free.”

Indeed, that simple, indisputable truth has everyone from Internet entrepreneurs to big-name software makers rolling out so-called “freemiums,” free products meant to attract prospects and turn them into paying customers. So far, few managed service providers have joined the stampede, but stories like Kendall’s help explain why some experts believe that giving away some of what they do for nothing might work as well for MSPs as it has for a host of technology firms in other fields.

TRY BEFORE YOU BUY

Freemiums were initially the exclusive province of Web-based startups looking to make a disruptive splash in new markets, according to Lincoln Murphy, managing director of Sixteen Ventures, a marketing consultancy in Arlington, Texas. “They were willing to take what amount[ed] to quite massive risks,” he says. In the process, however, they discovered that giving away feature-limited products can not only drive sales of more comprehensive paid offerings, but fuel cross-selling of related services and add-ons too. The upshot is that even tech industry giants are introducing freemiums these days. Microsoft, for example, has been giving away a stripped-down online version of its Office productivity suite since 2010.

Such moves come as no surprise to Jeff Kaplan, managing director of THINKstrategies Inc., a cloud computing and managed services consulting firm in Wellesley, Mass. “An increasing number of business and IT decision makers are being exposed to freemium offerings in the consumer world,” he observes. As a result, they’re increasingly demanding similar try-before-you-buy options from their technology providers. Before long, Kaplan predicts, MSPs that don’t offer free introductory service packages will start losing deals to competitors that do.

To date, however, a variety of issues have kept most MSPs from joining the freemium bandwagon. For one thing, SaaS vendors rely chiefly on relatively affordable commodities like processing power and storage space to satisfy customer demand. Managed service providers lean far more heavily on costly flesh-and-blood technicians, and every hour those employees spend supporting nonpaying customers comes straight off the bottom line. “The economies of scale are not there,” Murphy says. Some business owners, meanwhile, worry that anything they can get for nothing may be worth exactly that. “If you’re not charging enough for your service, people might not take you [seriously],” Murphy notes.

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