The Freemium : a quick way to drive business


Principles :

The freemium model consists of providing basic services for free to expand the customer base while premium features must be paid for.

Advantages & Challenges :

The main advantage of such a model is that it attracts a lot of customers with the free version. Customers don't have any commitments regarding the company and can enjoy the basic services for free or decide to pay more for the premium services.

The challenge for the company is to maintain a balance between attracting new users and trying to convert users into payers. In order to achieve that the company has to provide good services for free but also find premium features that will justify the switch from free to premium.

Evolution & Maturity :

The Freemium business model started to appear in the 1980s and was theorized in 2006 by Fred Wilson. Nevertheless it was with the digital revolution that Freemium was really democratized. It allowed a large customer base to access a unique platform worldwide while implementing products with almost zero marginal costs, which are two necessary conditions for the deployment of Freemium’s strategy.

Key figures :

Spotify counts 320 million users in 2021 and among them, 144 million are premium users.

Products & Services adapted to the business model :

There are different ways in which the product or service can be limited in the free version: limited features, limited capacity, limited use license, limited use time, limited support, limited or no access to online services.

Many products are adapted to this business model such as Online Games, Softwares, Newspapers, TV, Social media.

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