Evolution of Netflix's Paywall Strategy: Brand Growth vs Money Growth

If you bought a DVD player in 1998 from any of the major manufacturers, you probably got a coupon for "Free DVDs" from a company called Netflix.  

The broader story of Netflix's growth is well known, but less understood is how their paywall evolved over time.

In the late 90s, Netflix was small struggling company trying to get its DVD shipping product off the ground.

They didn't have a brand name yet, very few people owned DVD players, and Blockbuster was the dominant brand in the video rental space.

Trying to spark growth, Netflix partnered with the leading Sony, Toshiba and others to include a coupon for 3 DVDs, 5 DVDs or sometimes as many as 10 free DVDs along with purchase of your DVD player.

This promotion was expensive to set up, full of risk, but ultimately successful enough to fuel the companies growth.

Netflix obviously took off and doesn't need to run costly promotions anymore.

But you have to ask, If giving the product away was so effective at growing the company, why did ​Netflix stop completely​?

Several big companies that had a free offering have pulled it back in the last 10 years.

So does this mean that the "Freemium" class of product is dead or dying?

I don't think so exactly.

The "Brand Growth" vs "Revenue Growth" Spectrum

The classic advice for freemium products is to "think about them as a marketing expense", which I think gets at the main point.

Give away a high quality thing for free, more people will talk about you and your brand will grow.  

Lock that value behind a paywall, the less your brand grows and the more money you make right now.

The question really is where should each company be on this spectrum right now based on their maturity?

It's really tough to say, which is why paywalls are so hard to set up and work on.  A few things are clear though.

If you look at most of the big successful brands that have grown off a free product in the last 10 years, they tend to start further on the left and then move right with time.

• Netflix cut their streaming service trial from 30 days, to 14 days, to 7 days, to no trial at all.
• The NY Times used to offer 10 free article per month, then cut it to 5 articles, then cut it to 3 articles.
• Miro once upon a time gave away unlimited boards, then cut it 10 boards, then to 3 boards.
• Major League Baseball once aired all games for "free" on broadcast TV, then shift to cable, then to the MLB channel in 2002.

I think that most of these big "free" products are getting restricted, not because they don't work but because those companies now have established brands and need to grow revenue.

This doesn't mean that "freemium is dead", it means that the dominant companies in the space are now prioritizing revenue.

So What Should You Do With This Information?

This is pure opinion, but if you're a company starting out, you should be further left on that spectrum.  The more you're providing value in excess of your price, the more people will talk about you and this drives brand growth.

Strong brand and word of mouth is hands down the best form of user acquisition.

I'd also also say that you should delay monetizing that value for as long as you can.  

If you look at the google search volume for the branded keywords for both the New York Times, and Baseball itself, you can see the volume start to drop in the years that follow locking up their free offerings.

This is fine if you want to make money, but you'll have to spend more directly growing the brand.

Worldwide Searches for "NY Times" or "New York Times" in the last 20 years are down...

‍

Worldwide Searches for "Baseball" in the last 20 years are down...

‍