Enterprise 2.0 remains one of the best opportunities in the technology market today. The enterprise software incumbents are currently a full generation behind, just now entering the traditional SaaS market through acquisition (for example, Oracle’s $1.5 billion acquisition of RightNow and $1.9 billion acquisition of Taleo, and SAP’s $3.4 billion acquisition of SuccessFactors).

Meanwhile, more forward-looking software companies like Salesforce.com are realizing that the route to the enterprise now goes through the user, not the IT department. Salesforce.com has snapped up several Enterprise 2.0 companies, including Assistly, Rypple, Manymoon and Groupswim (now Chatter).

But Salesforce.com is the exception. It will be another five years before the mainstream enterprise software market wakes up to the fact that Enterprise 2.0 apps are the industry’s future. That’s plenty of time for new companies to establish market leadership and challenge the incumbents, who will either have to adapt or buy Enterprise 2.0 startups to remain competitive.

In my previous article, I described the go-to-market model of a typical Enterprise 2.0 startup in three phases: freemium, inside sales and enterprise sales.

This article is focused on phase one — freemium. In follow-up articles, I will dig into the transition to an inside sales force and then how to add a profitable direct sales force to the model. Almost all Enterprise 2.0 startups employ each of these sales strategies sequentially or in parallel at different points in their maturity.

An effective freemium go-to-market effort depends on product design, distribution and conversion.

Freemium product design 

Enterprise 2.0 starts with the premise that “users” are “consumers” first and foremost, and that they make the software purchase decisions, not the IT department. So how do you attract enterprise users?

1. Make your app fun. Employ game mechanics, from vendors like Badgeville, to drive engagement. Design an app that you’re passionate about — perhaps because it addresses one of your own needs. Give it a personality. SurveyMonkey is a good example of app personality resulting in increased market share. The last thing users are looking for is a boring software experience.

2. Study your active users. The key metric of freemium product design is active users. Instrument your app with analytics tools from vendors like Google Analytics or Flurry. The data your users generate will drive product management and usability decisions, which in turn will drive conversion and revenue. Determine the most popular features, and then remove the least popular ones. As Twitter co-founder Jack Dorsey says, “Simplification is key.”

3. Pre-populate the data. No one likes an undecorated room, and no one likes an app with no data. Incorporate data from outside sources such as Google Apps (email and contacts), Salesforce.com (accounts and status), Facebook or LinkedIn (contacts and relationships). Can you expose anonymized or aggregated data from other users? Is crowd-sourced data an option?

4. Don’t forget the APIs. Users expect freemium Enterprise 2.0 apps to work with their existing systems. Publish your own APIs and let your users build integrations and product extensions, and then publish these back to your user community.

5. Prioritize the platforms. Your app also needs to be available through web browsers, iOS and Android, at a minimum. Depending on your specific application, making it available via desktop downloads, bookmarklets, browser plugins or MS Office plugins may increase your user base. HTML5 and cross-platform development tools such as Appcelerator and Sencha can help with this.

Freemium distribution

The key metric of distribution is downloads, so make your product available everywhere your user is likely to be. In my experience, mobile apps tend to accumulate two to five times more users than web-only offerings. Venture investor Fred Wilson covered this in his blog post, “Mobile First, Web Second.”  The mobile market is much larger too. Smartphones and tablets outsold PCs by almost two times in the fourth quarter of last year.

1. Target the mobile user first. Enterprise 2.0 app developers should target the mobile user via the Apple App Store and Android Market (recently rebranded Google Play). The Amazon.com Appstore for Android is the next place to focus in terms of importance. If you have the resources, you should also consider developing for secondary app stores such as Windows Phone Marketplace or Blackberry AppWorld. Getting ranked and positively reviewed on these sites takes some effort and capital, but it’s worth it.

2. Focus next on the web marketplaces. Remember, your goal is downloads. Google Apps Marketplace is Google’s SMB offering. It promotes apps that are highly integrated with Google Apps (Gmail, Calendar, Sites, Docs) and has a healthy market share among small businesses. Google’s Chrome Store is geared more towards individual users, but it is also a productive distribution channel. Salesforce.com’s AppExchange, one of the original marketplaces for Enterprise 2.0 apps, is being repositioned to serve users, not just system admins, and will be another new channel.

3. Investigate the marketplaces of other leading Enterprise 2.0 apps. Examples include the Intuit Marketplace, LinkedIn Application Directory, MailChimp Integrations Directory, Splunk Partner Portal, FreshBooks Add-Ons, Box Applications, Atlassian Plugin Exchange and Heroku Add-Ons.

Freemium conversion

The key metric here is conversion rate. If you have successfully executed your product design and distribution, you should have a sizable free user base, and in my experience, one to three percent of them will convert to your paid version. Increasing your conversion rate may be the difference between success and failure, so experiment with ways to improve it.

1. Erect a paywall. The most common way to convert free users into paying customers is to erect a paywall that unlocks additional features or capacity. The analytics you collect from your early free users will give you insight into which features are considered most valuable, and thus what you should consider charging for. A single monthly price per user is the most common method of charging.

2. Offer a preview or free trial of additional features. One common way to increase your conversion rate is to entice users to upgrade by offering a preview or free trial of additional features within your app.

3. Remove barriers to conversion. One company, Atlassian, has developed a clever way to increase in-app conversion called Causium. Instead of charging users, Atlassian asks them to donate a small amount to a charity called Room to Read. The fundraising is for a good cause, but the strategy is really designed to get users to input their credit card details, thus removing a crucial barrier when you attempt to convert them to a paid subscription later.

4. Feel the love. Evernote CEO Phil Libin believes in the “NPR model.” Evernote gives users a fully functioning app for free. Libin believes that by developing a deeply loyal and happy user base, some will love the product so much that they will voluntarily pay for the premium edition. Even if your users don’t love your product as much as Libin’s, offering a fully functioning free app and then selling premium add-ons, such as integrations with existing enterprise applications, is an effective conversion strategy.

“Freemium” is an evolving term and startups are constantly experimenting and redefining the model as it applies to Enterprise 2.0. Please let me know what’s working for you. And stay tuned for my next article, which will outline the key metrics and best practices for selling Enterprise 2.0 software using an inside sales force.

Scott Irwin (@scottirwin) is a general partner at Rembrandt Venture Partners, where he focuses on Enterprise 2.0 and SaaS investments. He is very bullish on small startups’ ability to disrupt the stodgy enterprise software market.

Image courtesy of Flickr user bixentro.

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That all makes for great listening, but the real reason Maron’s podcast deserves a listen from digital media and technology execs is because it shows how someone like Maron, who was “in a compromised position and a little desperate” when his terrestrial radio show was canceled by Air America, has been able to resurrect and build a career through the power of Internet distribution and community, as with an increasing number of other artist-entrepreneurs.

I recently took some time to chat with Maron, which you can listen to by clicking below on the big orange “play” button from the embedded SoundCloud player. In our conversation we talk about some of the lessons he has learned since the launch of his podcast. He talks about his experiments with new methods to sell his content (including the launch of his own app), how he views podcasting and new media in the context of the larger new media landscape, and his thoughts on old friends like Louis C.K. as they find ways to disintermediate and disrupt the old guard, among other things.

Marc Maron – GigaOM Podcast by GigaOM

I suggest you give the whole podcast a listen, but below are a few takeaways from my podcast conversation with Maron.

Embracing new models isn’t optional but required

According to Maron, unless you are a megastar, you need to take control of your own career and embrace new distribution models,  because no one else is going to do it for you.

You think your local paper is going to take care of you? The comedy club’s website is going to draw people in? You really have no choice.

While Maron is specifically speaking of comedy, it is true for artists of all stripes. Taking control of your own distribution and monetization through new Internet models is something we are seeing musicians, authors and video artists at all levels do, since, increasingly, they can’t rely on corporate media to promote and monetize for them.

Experiment with monetization models until you get it right

Maron knew that once his library of podcasts grew to a certain size, he could monetize the back catalog. Once he reached 150 podcasts, he used an aggregator and attempted to charge for podcasts through iTunes. However, it proved difficult, so ultimately he shifted gears, embracing an app model with in-app payments for recurring subscriptions. He has found sponsorship revenue growing as he has become more popular, and he is also using a donation platform, which works well because of the intimate nature of the podcast medium.

With podcasting, you’re able to create a genuine, intimate relationship with people because it’s a solo listening experience, so they build a bond with you. It’s a deeper relationship.

New models accepted as part of “the media landscape”

Maron records his show in his garage, welcoming household names such as Conan O’Brien, Ben Stiller and Rainn Wilson into his garage, complete with cat hair from the many strays Maron welcomes into his home. I asked Maron about this, and he said it’s just the way business is done today.

 [In today's media landscape] it’s not unusual to go to someone’s house, sit in their living room, and do a thing.

On Louis C.K.

Maron counts Louis C.K. among his oldest friends in comedy, and when I asked him about what he thought of Louis C.K.’s self-distribution efforts, he had this to say:

It’s spectacular. Anytime someone makes a move in that direction it empowers the artist. . . . What Louis did was a milestone in creative marketing by the creator.

Go ahead and listen to the podcast, and let us know what you think about Maron’s observations as well as the podcast itself. We are looking into doing more podcasts and would love to hear thoughts from our community.

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