These numbers are non-sense. He drops the price from $49 to free, then assumes you'd have exactly the same number of customers, and says how much money you lost. But if you made the service free you'd have a hell of a lot more customers at the lowest tier.
It doesn't matter because he made up a % for the amount that upgrade to higher plans, which would be the paying plans if free was the lowest, and that % would be completely different for free users vs. already paying users. You can't just change one number like this.
Google has released stats that apps that moved over to in-app payments from paid apps make 20x the amount they did previously. Making people pay to enter is not good business.
Hey...I'm the author of the post. You're completely right. The numbers are non-sense. We wanted to outline a quick example of the impact of freemium with all things being equal. Of course, things would change, especially with differing market forces. We probably could have been a bit clearer about that or explained it in a much different manner. Additionally, we could write a follow on post with a real world example based off white labeled data to prove the point much more efficiently.
In terms of making people pay to enter, I think it really depends. As we explained, if you're not in a position to truly move folks from a value limited free taste of a product to a premium tier, then I'd say you're better off growing slowly before opening up the floodgates. Take a look at Wistia or MailChimps approach. Of course, there are great counterexamples, as well.
Forgive me, but that's fundamentally intellectually dishonest – if you make an argument with completely fictitious numbers and know its seriously flawed but still put it forward as if it's genuine, you're simply lying to support your argument.
If you have real numbers, use them.
If you don't, this all sounds a lot like the sort of "numerical" support for anti-piracy measures made by record companies. The interconnection between the marketing role of a free option and its numerical effect on sales is going to be highly nuanced.
Further, there are clear-cut reasons that "Big customer databases" are valuable even if "they’re [not all] ponying up cash."
The first, discussed elsewhere here, are network effects. Dropbox gets more and more valuable for paying users every time a free user signs up because it makes it all the more likely that the next person they need to share a file with will be able to easily handle a DB share.
Second, building a big user-base of devoted users, even if a large percentage are free users, potential builds a barrier to entry for any possible competitors – thus protecting the revenue from the existing paid users and encouraging future paid users.
Still, I believe that underlying your whole post is the important point that you must have a solid business plan and understand just how you are going to drive profits – be it freemium or otherwise and that's a very important point, so thank you for calling it out.
It doesn't matter because he made up a % for the amount that upgrade to higher plans, which would be the paying plans if free was the lowest, and that % would be completely different for free users vs. already paying users. You can't just change one number like this.
Google has released stats that apps that moved over to in-app payments from paid apps make 20x the amount they did previously. Making people pay to enter is not good business.