Freemium
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Freemium is a business model that works by offering a product or service free of charge (typically digital offerings such as software, content, games, web services or other) while charging a premium for advanced features, functionality, or related products and services.[1][2] The word "freemium" is a portmanteau combining the two aspects of the business model: "free" and "premium".
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Origin
The business model has probably been in use for software since the 1980s, particularly in the form of a free time- or feature-limited ('lite') version, often given away on a floppy disk or CD-ROM, to promote a paid-for full version. The model is particularly suited to software as the manufacturing cost is negligible, so – as long as significant cannibalization is avoided – little is lost by giving it away for free.
However, this term for the model appears to have been created only much later, in response to a 2006 blog post by venture capitalist Fred Wilson summarizing the model:[3]
Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base.
Jarid Lukin of Alacra then suggested the term "freemium" for this model.[4] The term has since appeared in Wired magazine and Business 2.0, which has since been used by bloggers such as Chris Anderson and Tom Evslin. In 2009, Anderson published the book Free, which examines the popularity of this business model. As well as for traditional software and services, it is now also often used by Web 2.0 and open source companies.[5]
As explained by several of the references cited above, freemium is closely related to tiered services. It has become a highly popular model, with notable success, such as quite prominently in LinkedIn,[6] and in the form of a "soft" paywall, such as those launched by The New York Times,[7] and by Press+.[8] Alternative models for monetizing digital offerings, noted in "See also", include Pay what you want, which also loosens conventional pricing constraints.
Restrictions
Ways in which the product or service may be restricted in the free version include:[9]
- Feature limited (e.g. a "lite" version of software)
- Time limited (e.g. only usable for 30 days)
- Capacity limited (e.g. for an accounts package, can only be used to create 10 invoices)
- Seat limited (e.g. only usable on 1 computer rather than across a network)
- Customer class limited (e.g. only usable by educational users)
- Effort Limited (e.g. all or most features are available for free, but require extended unlocking which can be shortcut for a fee)
Significance
On 7 June 2011, PC World reported that traditional anti-virus software had started to lose their market to freemium anti-virus products.[10]
See also
References
- ↑ JLM de la Iglesia, JEL Gayo, "Doing business by selling free services". Web 2.0: The Business Model, 2008. Springer
- ↑ Tom Hayes, "Jump Point: How Network Culture is Revolutionizing Business". 2008. Page 195.
- ↑ "Fred Wilson's blog, A VC". http://avc.blogs.com/a_vc/2006/03/my_favorite_bus.html.
- ↑ "The A VC comment suggesting "Freemium"". http://www.avc.com/a_vc/2006/03/my_favorite_bus.html#c15324948.
- ↑ Heires, Katherine (2006-10-01). "A Business Model VCs Love". Business 2.0. http://money.cnn.com/magazines/business2/business2_archive/2006/10/01/8387115/index.htm.
- ↑ "'Freemium' approach attracts venture capital: Converting users into paying customers is key". http://www.montrealgazette.com/technology/Freemium+approach+attracts+venture+capital/5358592/story.html.
- ↑ Ryan Chittum (July 22, 2011). "The NYT Paywall Is Out of the Gate Fast". Columbia Journalism Review. http://www.cjr.org/the_audit/the_nyt_paywall_is_out_of_the.php. Retrieved December 7, 2011.
- ↑ Laura Hazard Owen (September 6, 2011). "Three More Papers Put Up Paywalls, With Some New Twists". paidcontent.org. http://paidcontent.org/article/419-whats-new-in-newspaper-paywalls-google-one-pass-membership-programs/. Retrieved December 7, 2011.
- ↑ Kincaid, Jason (2009-10-24). "Startup School: Wired Editor Chris Anderson On Freemium Business Models". Techcrunch.com. http://www.techcrunch.com/2009/10/24/startup-school-wired-editor-chris-anderson-on-freemium-business-models/. Retrieved 2010-03-15.
- ↑ Dunn, John E. (7 June 2011). "Free Antivirus Programs Rise in Popularity, New Survey Shows". PC World. http://www.pcworld.com/businesscenter/article/229610/free_antivirus_programs_rise_in_popularity_new_survey_shows.html. Retrieved 12 June 2011.
External links
- Bruce Sterling (June 2006). "Blogging for Dollars". wired.com. http://www.wired.com/wired/archive/14.06/posts.html?pg=7. Retrieved December 7, 2011.
- Chris Anderson. Free: the future of a radical price. 1st ed. Hyperion; June 24, 2009. ISBN 978-1-4013-2290-8.
