I’ve been thinking about Evernote and Dropbox, and the characteristics that make them successful freemium businesses.  Of course, a lot has been said about freemium, and Ning’s recent decision to drop that business model has placed it under renewed scrutiny.  But I don’t think it’s time to bury freemium just yet.  I wanted to write down some quick thoughts on what I believe are three essential characteristics of a successful freemium business:

1. Be patient with users.  Evernote’s cohort analysis shows that initial conversion rates are at about 1%, but once users have been with the service for 18+ months, that jumps to 4% — more than enough to be profitable.  And it’s not actually a bad thing to have free users for that long — at that point they are so invested that they’re not going to take their data elsewhere.  They know and love the product, so when they hit the storage limit, they’re comfortable with paying.
2. Have a natural (and inevitable) path to upgrading.  With both Dropbox and Evernote, if you use the product long enough, you’re going to have to upgrade — at some point you’re going to run out of storage.  If you don’t have a natural path to upgrading you need to create one, or you’ll find yourself in trouble.  Users will use your free product for forever and be happy with it.  You need to make it inevitable that a certain % users will hit one of your limits.
3. Have a great free product.  It might sound contradictory, but if your free product sucks, the switching cost will be very low.  Dropbox and Evernote are successful because users love the free product, so when they run up against the limits, the decision to pay is an easy one.

To put it another way, I think that to be successful as a freemium company you need to (1) have a free product that users love, (2) be ok if those users don’t convert to paying customers for months, but (3) make it inevitable that at some point, they will have to upgrade if they want to keep using your service.

If you haven’t seen these great talks on freemium, I highly recommend you invest the time to watch it – very informative:

• Dropbox CEO on Startup lessons learned
• Evernote’s CEO discusses how to make freemium work

Hey, South African tech industry?  Meet me behind the rugby field at 15:00.  We need to talk.

I’ve been back in South Africa for 3 months now after 6 years working in Silicon Valley, and I think I finally figured out what’s been bothering me about the tech industry here ever since I got back.  The problem is that we have some serious Goldilocks issues going on right now.

This one is too cold

The first problem we have is a severe inferiority complex.

Remember: just because we’re not in Silicon Valley doesn’t mean we don’t know what we’re doing.  Like Morpheus says in The Matrix: “Some things are true whether you believe in them or not.”  We’re good at what we do.  We’re really good.  Why does it matter if anyone knows it at this point?  They will, soon enough.

I know that many of those dudes in San Francisco treat us like the little brothers of the world — adorable but not to be taken seriously.  But that doesn’t mean we have to grovel.  Who cares what they think?  Haven’t you heard?  Silicon Valley is dead.  You can be brilliant anywhere.  So we might as well be brilliant in the most beautiful place on earth.

This one is too hot

But we also have a second problem.  Some of us tend to overcompensate.  You see, since we have this inferiority complex, there is a danger in wanting to “show them a thing or two.”  So we livetweet from events that we’re not attending.  We write reviews of products we haven’t seen.  We fight about what the definition of a startup is, as if that matters.  We show up at conferences and give talks on who we are instead of what others can learn from our experience.

No, not cool.  There is no need to overcompensate.  We have some very unique skills, and we have the benefit of the element of surprise.  No one thinks the next Facebook is going to come from South Africa.  Let’s keep it that way — don’t let them know we’re here!

This one is just right

But there is an alternative.  We can make great products, build great companies, and take over the world without anyone even knowing where we’re from.  Does it matter where WooThemes are from?  It matters to us.  It doesn’t matter to anyone they sell their products to.

So, please.  Stop being apologetic about our skills.  Stop wishing we were Silicon Valley.  Stop pretending to be in Silicon Valley.

Instead, follow Seth’s advice.  And forgive me for quoting verbatim, but no one says this better than him:

Yes, I know you’re a master of the web, that you’ve visited every website written in English, that you’ve been going to SXSW for ten years, that you were one of the first bloggers, you used Foursquare before it was cool and you can code in HTML in your sleep. Yes, I know that you sit in the back of the room tweeting clever ripostes when speakers are up front failing on a panel and that you had a LOLcat published before they stopped being funny.

But what have you shipped?

What have you done with your connection skills that has been worthy of criticism, that moved the dial and that changed the world?

Go, do that.

Something’s been bothering me about Twitter’s version of the Retweet.  A lot has been said about the pros and cons of the feature, but here’s my main problem with it:

You can’t easily see when you’ve been retweeted, and by who.

Twitter Retweets don’t show up in your stream as @ Mentions, so the only way to see when you’ve been retweeted, and by who, is by going to Twitter.com, clicking on “Retweets” in the right nav, and then clicking on the “Your tweets, retweeted” tab.  That’s just too many clicks.  Some iPhone apps like Echofon and Tweetie support the Twitter Retweet, but they don’t show you who retweeted you.

The problem with this is that it reduces Twitter’s sense of community.  I often like communicating with those who retweet me, and this takes away that ability (unless you go through a lot of work on Twitter.com).

There are, of course, other issues with the Twitter Retweet function, like:

• No ability to add your own comments (but this is what the “/via @” syntax is for, so that’s probably ok)
• Diluting the value of retweets because some people use Twitter’s Retweet feature, and others use the traditional “RT @” syntax
• Weird and confusing syntax when someone uses Twitter’s Retweet function to retweet a “RT @” tweet.
• Tweetdeck, Echofon, Tweetie… they all handle Twitter Retweets differently, so it makes for a confusing UI.  For example, if I want to unfollow someone who Retweeted something, I can’t do that from within the tweet-level functions in Tweetdeck.

This might sound like I’m nitpicking, but it’s not my intention.  I applaud Twitter’s initiative to embrace the Retweet function.  And I think ever since Doug Bowman joined the Twitter design team, they have made Twitter.com a lot more useful with some great features.

But I do think this Retweet thing isn’t quite working yet.  I think having Twitter Retweets show up in your @ Mentions would solve a big part of this issue.  So, Doug – can you make that happen please!?