There is no free lunch – Babbel goes Premium

What is your association with the magic numbers 2.0? Social Media, networking, chatting and, of course, no cost or at least freemium.

Well, not anymore. At least not in education. With the launch of Babbel 2.0 the company says “Good bye” to freemium and “Hello” to advertising free premium services.

Markus Witte, the Managing Director of Babbel wrote a long and detailed blog post on this decision that will of course heat up some discussions between the free users of the platform. First reactions of other companies like VidSchool and busuu on TechCrunch Europe blog are not what one would call “shocked”.

To quote Markus Witte:

[…] we have no real role model we can emulate or by whom we can “be inspired”. It’s pioneering work, and it requires expertise to be constantly rethought and redone.

I think this is true for every company in the online education sector but Babbel is now of course going even a step further by leaving the freemium path and entering the terra incognita of paid services. But wait. Isn’t there a native tribe on this new continent?

Of course there is. Like Columbus did not discover an empty world the paid online language learning platform is already occupied by Rosetta Stone. So infact, Babbel has somekind of a role model now.

Nevertheless I think it is a courageous step to change your business model in a radical way like this. Basically Babbel is now rebooting their whole community, starting new from scratch. Of course this time it will be easier than two years ago. They now have two years of experience, they have a complete product and they have two years of data. But a community built on the idea that the service is freemium cannot be totally converted into a paying one, at least I would be very suprised.

Since the beginning Babbel have focused very much on the usability and the design of the product. This concept can also be seen in the Babbel commercial below.

And as you know, Babbel was even nominated at the European TechCrunch Awards for their website design. So there has always been a premium feeling included in the product which did not quite fit the freemium idea. They will also strongly focus on the technology itself as the content will be more and more provided by renown publishers from now on which again is a parallel to the Rosetta Stone concept. Quoting Markus Witte:

Our idea is to create a new kind of online learning system that adjusts itself to the needs of the learner and makes it easy to comprehend new subject matter without too much effort. […]

To significantly improve our service and to approach that user-centered learning environment were dreaming of, we’ve put together an extensive team of professionals from different disciplines. Software developers and internet specialists work side by side with more than 20 teachers and language experts. Simultaneously, we are striving to make this complex application easy to use and more or less imperceptible behind the content.

Generally, I think it is possible to sell a premium language course online. But the new pricing of Babbel does not fit this idea and the look. 4,95€ to 8,95€ per month do not look premium. The price looks (and feels), for the lack of a better word, cheap. So, as the step itself of going totally premium is courageous  the realisation is inconsistent. It is as if Babbel wants to leave a door open for some of the old community members to jump on the new model. But I don’t think that this is likely to happen.

There are a couple of reasons for this. One is simple but has a big effect when buying things: guts. As I said, the price does not match the promise. If everything is so great and the material is from big publishers and there is no advertising in the program then why aren’t they able to sell it for a higher price? Where is the catch? And even if there is none, people simply won’t trust it and therefore don’t hit the “buy now” button. To my mind a service like this has to charge at least 19.95€ per month up to 49.95€ per month.

And that is because the second important factor is that this new product is made for a totally different customer group. The freemium model attracts people who might have an interest in learning a language at some point in their life but they are not super focused in achieving this goal. Contrarily they are happy about every distraction they can get. That’s why they chose a community based model where they can chat and learn a bit. And if they get stuck with their Mandarin, they start some Icelandic. You might want to call them casual learners who visit the platform not for a fixed goal but for the social factor.
The new Babbel model like the Rosetta Stone model is focused on the language learner who really wants / needs to learn a new language. This means there is a clear goal and a fixed schedule. I contrast to the community member this learner is focused and only uses the service to achieve the goal. This user is also most likely a lone warrior who does not need the support and distraction of a community. Hence there are no emotional attachments, it’s just a service the user pays for. And this means after the user accomplished his / her goal, he / she leaves and stops paying.

That means the drop rate for the new Babbel 2.0 will be higher than before. If the social glue is missing there is only the mission left. My prediction is that most users will use Babbel 2.0 for about three to six months. Therefore Babbel needs to make the same amount of money in a shorter time plus if you take into consideration that the customer might not return after the personal goal has been accomplished you have to add this into your calculation, too.

Bottom line: I do think there is a market for Babbel 2.0 but I would recommend to burn down all the bridges. No regrets. If you want to be premium, and the Babbel product has all the potential to be premium, you have to charge premium. Otherwise people will spend too much time searching for the catch instead of starting to learn.

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  • mkwi

    Hello Kirsten, Once more, I'm impressed by your expertise. Obviously, I have different opinions on some issues. And this picture is absolutely hilarious. Do you have a high-resolution file for print?

    All the Best,
    markus

    • http://kirstenwinkler.com KirstenWinkler

      Thank you Markus :). I will try to send you a better copy of the picture. And watch out for the Indians ;).

    • chinamike

      Hilarious????

      I suppose, especially if you identify with these lily-white flag holders. I doubt that historically sensitive indigenous people, Africans, Chinese, or Arabs would consider this hilarious.

      Especially seeing as how in the recent past, European languages were used in the service of subjugating native peoples and sometimes making them feel like second-class citizens in their own countries.

      • Sarah

        kind of agree with you, but just calm down.. that was a picture just for fun

  • http://www.english-attack.com/ Paul Maglione

    Very good analysis Kirsten. Pricing is perhaps the biggest challenge to online service providers, but I agree that once the “chasm” between free and subscription is crossed, then price elasticity is relatively low and there is no huge difference between being prepared to pay 10, 20 or 30 euros (Rosetta stone: 1,000 dollars!). That said, Babbel has some really nice design, they have put so much work into this, so I wish them well.

    • chinamike

      Paul if you mean yearly pricing I might agree, but in terms of monthly pricing, which Babble advertises, these differences are HUGE.

      Over the course of a year the differences between your lower and upper prices amounts to 240 Euros. That, is a pretty penny.

  • http://www.languagesoutthere.com jasonoutthere

    Love the headline Kirsten. This has been a big mindbender for many people, pricing online. No point me biffing on here as finer minds have expounded, but the lunch, as any fat cat city banker will always be happy to tell you is most definitely never free (I did actually biff on about this a while ago, not that anyone noticed :-)

    • chinamike

      Pricing on-line is similar to off-line pricing, the big difference being the pace a which new competitors are constantly moving into your space.

      On-line you need to price against BOTH present and unseen future competitors.
      Love to hear your thoughts on pricing Jason. This issue is kicking up a lot of dust.

  • chinamike

    Well,

    This was to be expected after taking that investment capital. It may be a risk for Babble to change business models mid-stream but it is one they are going to have to take. I think all the polite talk about the negatives of advertising obscures one fact– that they will never be able to turn a profit if they rely on ads. Once you face this fact, it is an easy decision to get rid of ads and all the downside they involve.

    In terms of Rosetta Stone being a possible model for Babble, well, I find myself shaking my head. The overhead at Rosetta Stone is huge, they currently have 224 Kiosks selling their products mainly in airports across the U.S. . In their latest annual report they claim that, “our multi-channel marketing and distribution models are fundamental to our success. Specifically, we focus on educating customers about the many benefits of our products and services by leveraging our advertising and kiosk network in order to drive website and call center traffic”.

    I doubt this is a model that Babble wants to follow. In fact I'm betting that their business model is much more a mass market model aiming at nibbling away (with feature comparisons) at the underbelly of companies like Rosetta Stone and other high overhead publishers.

    A better example of a model to follow is Chinesepod which has also very recently turned its back on the freemium model. I wouldn't be surprised if Babble is following the developments at Chinesepod. In any case, I can't imagine how you go from being free to becoming a premium product in the space of 24 hours especially if you are essentially still offering the same product. Any large price increase would be met with derision and disbelief.

    My conclusion is that Babble doesn't want to become a premium priced site but does want to offer a very affordable premium product to the mass market. This move and similar moves by like-minded companies will make it increasingly difficult for premium suppliers like Rosetta Stone to continue charging premium prices in a global market.

    • Sarah

      I totally get your point and think the same.
      Actually for myself I only got attracted when seeing the price is much more lower than RS after my trial course in French. and that is why I purshased the 3month course, and also help Babbel advertise and ask my friends to try it. some even buy it.
      However, if the price went up to like the author mentioned around £50, I will definitely leave and stick to my text only French learning. I just need to work harder but I spend $0.
      also , they need to consider the price in lower standard countries, first of all Babbel will lose big chunk of Chinese users, because £50=rmb 500! using rmb500 is like using £500 in here. while for the EU market, they have much easier way to communicate with native speakers and can just fly to each other in within the continent and practice the language. (SKype make friends with native speakers + talk in target language +£20 flight ticket+immerse learning)