The basic service is free, you pay for more: this is essentially the essence of the freemium business model.

 

Increasingly firms are investing on the freemium model. Just think about the big digital giants.

The term “freemium” was coined by Jarid Lukin and popularized by the venture capitalist’s blog Fred Wilson and refers to those business models, mainly based on the web, which offer free services to all users and the possibility, upon payment of a price, to access the premium service which is to obtain a broader and improved service.

Usually the free service is subject to limitations in its use. Generally, only less than 10% of users decide to access the premium service and this explains how the trend is to use the free service forever unless there is a time limitation to use it as a free member. For this business model to be effective, this small slice of premium users must be able to cover the costs of the largest share of non-paying users. In a freemium model the key parameters to be evaluated are:

– the average cost of the service to a free customer;

– the percentages with which free users convert into paying customers.

Currently, four different freemium models can be identified:

– temporal limitation;

– with limited functionality (eg Spotify); 

– limiting number of users;

– limiting the type of customer.

According to Chris Anderson, well-known journalist and editor of Wired magazine from 2001 to 2012, the growth of new free offers is closely related to the economic peculiarities of digital goods and services. An example is the constant decrease in costs of online storage spaces that allows to reduce the cost of production of certain offers.

Engagement is the key accelerator for freemium services, usually games.

There are certain techniques and strategies used to keep you engaged while using the service. Get one of these techniques. Games like candy crush keep you engaged, even when you’re not playing them, by making you wait for the lives to regenerate.