The thread of monetization

Last week a startup CEO for a consumer software company asked me when I thought he should start to monetize users. Should he keep the app free, grow to 100 million downloads (his goal), and then introduce paid premium features? Alternatively, should he instead start charging for some features today, at the risk of reducing the level of free adoption. Our conversation caused me to realize that a number of our successful consumer companies have introduced what I’ll call the “thread” of monetization early on in the product. For example, Teamviewer made it clear from the beginning that their software was free for personal use by individuals but that companies were going to be expected to purchase a commercial license. In the early days of the company they focused exclusively on driving consumer adoption of their free product rather than the paid commercial version. In fact they didn’t enforce the paid license at all, relying instead on an honor system for payment for many years. But even though they didn’t pursue monetization, their users, employees, and investors all knew that in the long term the company was going to make money by selling commercial licenses. I think that setting this expectation early on probably helped them to reach 100m downloads faster than they otherwise would have. Users take comfort in knowing that a company has a viable business model, and especially in knowing that the business model is not about selling their usage data or monetizing in other sneaky ways. Introducing the thread of monetization early on seems like it has the potential to build greater trust with users and reduce friction of adoption.