Thursday, August 12, 2010 Offers Free Edition: How Much Does It Lower True Cost of Entry?

Summary: has added a free version of its system. But I think its strategy of offering an intermediate product between email marketing and full marketing automation may actually be more useful in attracting new customers.

On Monday, announced “the first free, instant-on demand generation solution”, a description carefully crafted to distinguish their offering from the free version announced by LoopFuse in June. The key term here is “instant-on”, which Genius defines to mean “instantly integrated website tracking, email marketing and social media campaign tracking” along with fully automated integration with, including custom fields in standard objects. LoopFuse also provides automated integration, but doesn’t have Genius’s Web tracking technology.

Since Genius has highlighted the issue, let's dive into its Web tracking. How it works it this: Genius creates URLs that send visitors to a proxy server, which in turn forwards their page calls to the client’s actual Web site. The proxy server continues as an intermediary through the entire visit, so it can track all pages the visitor sees. The same method is used in Web advertising, email links and linked embedded within social media messages. Because the tracking is done by the proxy server, there’s no need to make changes (i.e., add a tracking tag) to the Web site itself. This is what makes the tracking truly “instant”.

So far so good, but let’s be clear: the proxy server only captures visits that begin with a Genius-generated URL. So if I respond to a Genius-generated email, all the details of my initial visit are captured. But if I come back later by typing into my browser or searching for Genius on Google, the proxy server isn’t involved and Genius won’t know about me unless a traditional tag has been added to the Web pages. Genius does support such tags but now we’re beyond the realm of “instant on” and, indeed, of the free Genius system.

Genius' tracking technology is clever and unique enough that they’ve been able to patent it. But conventional marketing automation systems automatically track their own emails, landing pages and Web forms, also without touching the corporate Web site. This is not quite as powerful (or cool) as the Genius approach, but does reduce practical difference.

I wouldn’t have gotten into this had Genius not made “first free, instant-on” the focus of its announcement. What really matters is that they have a free offering, which implies two things about the system itself:

- they can provide fully automated, instant provisioning, which means their technology is sophisticated and their operating costs are low.

- the system is easy enough that new clients can use it with a minimum of support. Genius Marketing Vice President Scott Mersy told me yesterday that the company expects most users will learn what they need from a sequence of educational emails and online materials. He did add – and this and this is important – that limited phone support will be available to free users.

What does the free offering mean from an industry standpoint? I discussed this at some length in my June post on the Loopfuse’s free product. Bottom line: a free version will gain vendors some customers they wouldn’t get otherwise, but probably not create a huge difference in their market share or growth of the market itself. A marketing automation system is a highly considered purchase. Buyers recognize they will make a substantial investment in time and materials, so an extended free trial (which is what most free versions boil down to) is just one of many factors they weigh in selecting a starter system. Free systems may also attract companies so small that the free system is all they need. But those companies will never be a source of much revenue, even if the vendors manage to sell them some additional services.

In other words, the true purpose of a free system is to lower buyers' full cost of entry enough to attract a large number of new customers. This cost includes not just the software, but also the time spent to learn and operate the system, to develop new campaigns, and to design new business processes. This is why automated provisioning and self-service support really matter: they imply time savings for the users as well as the vendor.

In terms of entry costs, it's significant that Genius’ free version is based on their “Demand Generation” system, which occupies a middle ground between their “Email Marketing” and “Marketing Automation” products. The company provides a handy comparison table which shows that Demand Generation includes social media and Web tracking, triggered actions, Web forms and progressive profiling, but not drip campaigns, automated lead nurturing, lead scoring and landing pages. That is, it captures and tracks leads but doesn’t do sophisticated lead nurturing. This greatly lowers entry costs by asking users to start with a smaller, simpler set of tasks.

Although competitors will no doubt cite the limits of Genius Demand Generation as a weakness of Genius’ free offering, Mersy said the company will actually make the full Marketing Automation version available to free users who want it. He said they chose to start free users on the simpler system only to simplify their initial deployment.

That’s probably a very clever move – as is offering the Demand Generation version. Many marketing automation vendors have a “lite” system that is similar to the Genius Email Marketing, which includes Web behavior tracking and integration as well as outbound email. But the next leap is typically to full marketing automation. An intermediate product provides a smoother growth path for marketers who want to start small and slowly expand their marketing automation efforts. This addresses two key obstacles to first-time purchase:

- it lets Genius offer a substantially lower entry price than competitors, without dropping the price of its full system. Starting price of Demand Generation is around $800 per month, slightly higher than the $600 per month of Email Marketing but significantly below $1,100 per month for Marketing Automation.

- it lets marketers grow into the complete system at their own pace, rather than purchasing something that requires extensive campaign development and process redesign to use fully. Of course, marketers could also just not deploy these features in another system, but the psychology of that is quite negative.

It remains to be seen whether having an intermediate Demand Generation product really gives Genius a substantial competitive advantage. If it does, it won't last long because the approach could be easily copied. Still, Demand Generation represents a creative approach to a fundamental challenge in the market. For that reason alone, it’s worth watching.


Matthew Quinlan said...

Insightful analysis as always David. I applaud Genius for having the stones to join LoopFuse in offering a free option. While I have no doubt that some of the high-margin/high-touch competitorts will throw FUD in an effort to dismiss Genius' strategy, any of us who have personally experienced a free product and later purchased an upgrade knows the power of the freemium model (iPhone apps anyone?). One of the key benefits of a freemium offering is that it reduces the "friction" associated with the evaluation and appropriation (not just the final cost of the solution). A marketing team can start leveraging this technology without going through "appropriation requests" and "budget re-allocation" and prove the value to the executive team before asking for dollar one. Once the execs and the sales team have seen evidence they are much more likely to buy-in and suppoort the initiative.

Matthew Quinlan
Free Marketing Automation

Unknown said...

Thanks for the write-up.I do want to clarify a couple of points mentioned:

1) I mentioned that we automatically connect all fields within the lead, account, contact, and campaign objects including *custom fields*, but our connection does not include generic custom object support. We do have our own custom object that is part of the AppExchange package.

2) The free offering does provide limited phone support to answer basic questions and drive the users towards the support portal and information we make available to users. However, this is capped, and does not include a number of benefits included for subscribers.

Thanks again,
Scott Mersy
VP of Marketing

David Raab said...

Thanks for the clarification Scott. I modified the original post to reflect it.

Roy Russo said...

Hi David,

Moving our twitter discussion to your blog... ;-)

"Buyers recognize they will make a substantial investment in time and materials..."

Which is what freemium seeks to change. At LoopFuse, we've lowered the up-front cost and time investment by allowing anyone to use a free product and see the results within minutes.

"Free systems may also attract companies so small that the free system is all they need"

... which in turn lowers a Freemium vendor's cost of customer acquisition and overall marketing costs due to the viral nature of the model.

"if success is mostly due to user skill/commitment, then freemium is a bad idea because it attracts unskilled/uncommitted users"

The real question is whether marketing automation will always be a large-budget item for marketers or whether it will be an integrated easy-to-use toolbox that marketing orgs of any size can use without exhausting their budgets? You know my answer. ;-)

David Raab said...

Good move Roy -- you've pretty much convinced me that freemuim is a bad idea. Moving here means many fewer people will see it!

You pulled out the key quote above, about marketing automation needing a "substantial investment in time and materials". That investment remains a large budget item even if the system itself is free and easy to use. If you're hoping otherwise, I think you're in for a disappointment. (That said, I think LoopFuse can succeed either way -- your product is strong enough to compete on substance, not price.)

Roy Russo said...

Hi David,

I think you were convinced before I even posted, but we can agree to disagree and revisit this post in years to come. ;-)

David Raab said...

Actually, I was leaning in favor of the concept. Now, not so much. But you're quite correct -- time will tell.