On Paid vs Free

There seems to be a never ending debate around whether a product released should have a freemium or paid only tiers. There is no right answer to this but I wanted to break down some key examples I've noticed over time that help frame things better.

Advertising - If you are going after a social media play, a network effects driven play, a every human on planet earth should use this play. Most likely it should be free for the basic user. In terms of monetization if your going after billions or hundreds of millions of customers IE (Facebook, Google, Snapchat, Twitter). Going with a free model makes sense as you rely on the content generation of your customers to provide value. If this is the path you go down, you should think of advertising monetization in the long run.

Freemium Model - However if you're in the business of millions, tens of millions, maybe a hundred million users you'll want to look at a freemium play. You'll expect 90%+ of your customers to never pay you. You'll most likely cover the cost of these millions of users with advertising, with a play on a paid version for pro users. Good examples of this approach would be (Dropbox, Spotify, Soundcloud). 

Paid Model - If your market size may never reach millions of customers, or you're approaching companies/enterprises as your main target ie (SaaS or Enterprise Products) you will probably land with a low customer count high ARPU approach. This approach might mean having a trial period test product, lightweight plan for growing businesses. But most likely the focus of your business will be on the "enterprise" sales side. Your goal is have thousands, tens of thousands, or millions of dollars in revenue from each custom. Ideal company examples like this are (Salesforce, Box, Workday).

Having defined some sort of framework to identify what time of monetization strategy you might be going after based on your product and the ideal customer market size things should be a little clearer to see if there is a scalable market for your idea.

Below are some good questions to answer to help identify what kind of company/product you want to build. Do you want to build one that covers its cost with paid customers and grows over a lifetime (Teem Treehouse), or do you want to build a rocket ship and ride it off to mars (Slack). In the end both products/business paths reach a certain level of success. The main difference there is the journey. Who you want to be in that journey, what matters to you most, and what success means to you.

Are you going after a consumer market ? 

Is your average customer in the business of making money utilizing your product?

Can your customer on average even afford this?

How large of a company are you trying to build?

How quickly do you want this product to scale?

What is the end goal?