The Freemium Business Model


This highlights the concern I have with the freemium business model that is so popular with online service providers and app vendors. Some of them do it right and some do it so very wrong. The trouble is finding the right mix of features that allows people using your product to have a good experience and stay with your product, but also provide a set of upgraded features that convert a reasonable percentage of your customers into paying customers.

Get the mix wrong and a number for things can happen:

1. Your “free” product is too feature rich

  • result, customers stick with the free version as there is no need to upgrade
  • a very low percentage of customers upgrade
  • this is OK if you have a fall back revenue extraction model (i.e. ad-driven features)

2. Your “free” version is not fully functional

  • result, product is not usable unless upgrade is performed
  • customers become disgruntled with the product, stop using it, give it bad reviews
  • a lower percentage than desired will upgrade

3. Your upgraded features are too expensive

  • result, customers will stick with the free version
  • or not (see #1, and #2 above)
  • a very low percentage will upgrade

4. There are lots of other ways to fail…try to avoid them.

  • Above all, treat your customers like you would want to be treated yourself.

The magic, always, is finding the right mix of free and pay services. Don’t be afraid to experiment, change pricing, move features from free to pay and see what happens, get customer feedback.

The primary objective is to make the product usable in the free model, never hold your customer for ransom, never make them feel trapped.

The web site that is hosting this site (wordpress.com) does a really good job of using the freemium model. The site is incredibly functional in the free model but has a good set of features that you can pay for to provide enhanced service.

Dilbert Comic Strip,ย Dilbert ยฉ2012, Universal Uclick

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