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Startup Secret 49: Asphyxiation is a solid strategy

How do you "cut off a competitor's air supply"? Try giving away what they're selling.

"Get your free users to build a moat around your business."

--Michael Simon, CEO, LogMeIn

Michael Simon is a sneaky, sneaky man. He's attacking a well-established part of the industry, the remote desktop space. This is a market that Cisco Systems and Citrix have held onto for years, with their paid products, Webex and GoToMeeting.

Along comes Michael's company, LogMeIn, with, a super-simple, super-free screen-sharing app. Sure, there are paid upgrades (custom URLs for the sharing link, bidirectional sharing, etc.), but the free app is very strong. (Strong enough that I have this request: if you're going to do a screen demo for me, use this instead of those other apps. They're clunky.)

The idea, says Michael, is that "you use your free users to siphon off the oxygen supply to competitors...they create a much greater barrier to entry."

This is no "room for all of us in an expanding market" happy-talk. Michael is out for blood. "We're forcing [the existing companies] to jeopardize their renewal base with the freemium business." His goal is not to steal the revenue from customers of the other companies immediately. He just wants to dislodge users from their habit of renewing.

Michael says that the conversion rate from free to paid is small, in the "low single digits." However, he's got more to sell these people over time, and his goal is to get users to engage with the service, start to make it a habit, and win their loyalty, which he believes is more important than their money. "When we think about new products, we focus on maximizing the user base. We get to profit from product. It's more defensible that way."

Startup Secrets is based on personal interviews with people building companies, and from their blog posts and news stories. Subscribe to Startup Secrets on Twitter or come back to Rafe's Radar every Monday, Wednesday, and Friday for a new one. See all the Startup Secrets.