Freemium :: The "most popular” business model among Web start-ups is that you get basic services for free, while having to pay for the premium services.
Freemium business model is giving your service away for free, possibly ad supported but maybe not, acquiring a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offering premium priced value added services or an enhanced version of your service to your customer base."
Most popular services, such as MySQL, Pandora, Flickr, LinkedIn, Gmail and Skype use the freemium model.
Few Models are
- Feature limited
- Time Limited
- Capacity limited
- Seat limited
- Customer Class Limited
Key to its success is
- Not spending money on marketing.
- Offering flexibility and data exporting to eliminate buyers’ regret.
- Making sure to capitalize on and value goodwill.
- And only charge for things that are hard to do.
To make the freemium business model work first & getting free users to convert to paying customers is hard. Conversion rates of less than 1% are not uncommon. Free is often “good enough” and only a few people choose to pay for additional features and services. You have to put enough value in the free version to drive adoption (so that you get the scale and the network effects that derive from it), while providing enough incentive for people to pay for premium features or services.
The marketing and sales funnel is really wide at the top, and very narrow at the bottom. Plus, you have to make sure that the paying users subsidize all the free users.
The freemium business model was articulated by venture capitalist Fred Wilson on 23 March 2006.
Why $0.00 Is the Future of Business?
Because they’re creating very different (and efficient) business practices that will challenge businesses, not free itself.
- It creates a critical mass of users.
- Kills competitor
wait for them to go broke.
- Sets a standard
Pushing a standard that protects its other businesses.
Key point here is to move through adoption curve fast, and monetize it later.
- Brand awareness
Substitute for advertising is “Free” distribution.
- Help from community
- Create future buyers