ANTenna Blog -- Business & E-Business

In today's feature story, online businesses talk about the plusses and minuses of offering free online services -- and then transitioning them to paid services. Coincidentally, I had a conversation on the very same topic this week with Michael Simon, CEO of LogMeIn. For Simon, there are no minuses, only plusses.

Don't Miss: Harness the Power of 'Freemium'

Last week, LogMeIn introduced LogMeIn Central, a Web-based console that small and midsize busineses can use to manage the remote access, support, and management services they get from the company. LogMeIn Central costs $299 per year, and LogMeIn Pro, the company's flagship products, costs $70 per PC per year (less with volume discounts). But the vast majority of LogMeIn's 25 million customers use LogMeIn Free, which is, well, free. And Simon wants to keep it that way.

How can that be?

Even with 200,000 organizations running a paid LogMeIn product, that's only about 1% of the total user base. And with LogMeIn's hosted model, the company incurs costs to run its data centers and provide bandwidth to support all those free users. Everything costs money every time they use it," Simon says.

LogMeIn CEO Mike Simon

Nevertheless, Simon claims LogMeIn boasts 90% margins, even including the free services, and calls the free model "very sustainable." It's not a transitional strategy, he states. The company intends to maintain a robust free version "for the long term."

"We love 'em," Simon says of LogMeIn Free's users. "They are our oxygen," noting that "the business was built on the free product."

For Simon, the question is not how you convert free to paid users, but how do you grow your paid user base? For him, the answer is to grow your your free user base.

The key, of course, is to make sure that the free version is valuable enough to garner new users, but that the paid products offer enough additional value to entice your best users to upgrade.

"It doesn't make any sense," Simon says, "to say 'if you like LogMeIn Free, then stop using it and use this instead.' " The better approach is to say, "keep using it and add this to it." So in addition to LogMeIn Pro, the company some half-dozen additional products, including iPhone access (paid, natch).

Taking the irony one step further, Simon cites a free LogMeIn product you won't find on the company Web site. LogMeIn Scout is designed to turn find and turn off LogMeIn instances running in business environments. That may sound counter-intuitive, but
"it's important to keep IT organizations as our allies," Simon says. "The last thing you want is to be perceived as threat, not a help."

The strategy seems to be working. LogMeIn just completed an IPO in the midst of the Great Recession. The deal, delayed some 18 months, was originally being led by Lehman Bros., no less.

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