Freemium, which combines “free” with “premium,” gives essential aspects of a product or service for free and charges a premium for additional features. A freemium corporation offers vital services for free, generally in a “free trial” or restricted form, and premium services or extras.
This strategy allows a company to build customer loyalty by offering free services. Companies create client connections by delivering essential services for free and charging them for further assistance, add-ons, increased storage or use limitations, or ad-free user experiences.
The freemium model is adequate for internet-based firms with low client acquisition costs and a high lifetime value. It offers free fundamental elements of software, games, and services, then charges for “upgrades.” Startups often utilize it to attract people to their product or service.
Many software businesses have used freemium since the 1980s. Primary applications are free to trial but have limited features; you must upgrade and pay to acquire the whole package. Gaming firms like this model, too. Everyone may play the game for free; however, paying unlocks additional features and advanced levels.
Since freemium games and services make modest payments, consumers may not realize how much they (or their kids) spend.
In 2006, corporate information and workflow technology vendor Alacra’s Jarid Lukin created this word.
Pros and Cons of Freemium
When software or service is free to try, freemium business models are popular and can attract many first-time customers. Most consumers are ready to try a new software or service, making it easier for the firm to get customers and monitor their usage. Free users may not buy upgrades or things, but corporations may gather user data, show them advertisements to create cash, and grow their business statistics to improve the app.
For startups and corporations seeking to establish a product following, the freemium model increases brand exposure without requiring extensive customer service.
One drawback of the freemium model is that free users never become paying customers. Some companies are happy with their free users (and have accounted for them to make up most of their forecasted earnings through ad consumption or app time). Still, they may offer too many features on the free version that prevent users from upgrading to the premium version.
Users may tire of the free version because it lacks features but meets other roadblocks, or they may be unwilling to switch to the premium version.
- Companies may gain consumers’ attention and capture their data.
- They can grow their business numbers and ad money to improve the app.
- For startups, it boosts brand exposure without much customer assistance.
- Free users never pay.
- Too many free features may deter customers from subscribing to Premium.
- Users may be wary of a free edition without extras.
Free User to Paid User Conversion
Turning free users into paying ones is a significant issue for many organizations. When a business’s success depends on converting users, there may be a temptation to “upsell” free users to increase profit. The freemium model requires a combination of the following to function and convert customers to more costly plans:
- Limit free users’ features to encourage upgrades for a better experience.
- Give free users more excellent storage, app flexibility, and customizations as they use it more.
- Add personalization or customer service to accounts.
Spotify is one of the most successful freemium enterprises, with 381 million users and 172 million paying members.
The free version of Spotify lets users access all the same music as premium users, but they have to listen to commercials and have a limited amount of “skips” on tracks. Some don’t mind these restrictions. The premium edition is worth it for music lovers who want more control and better sound.
Another freemium business model example is Skype, which enables online video and audio communications. Skype accounts, software, and primary calling from a computer (or mobile phone or tablet) to another computer are free. Paying for advanced services like calling a landline or mobile phone is minimal compared to traditional phone company prices.
King, the maker of Candy Crush Saga, was a third early freemium model employer. The addicting game is free on king.com, Facebook, and other apps. Users can play with a limited number of lives for a set duration, but more lives cost money. Paying for “boosters” or additional movements helps players win stages and progress faster.
Is it a free trial?
Time-limited free trials let users “test out” a few product or service components, unlike freemiums. Freemium models provide consumers with lifetime access to the complete app.
Do freemiums gain customers?
Freemium models allow new users to trial a restricted product version without paying, growing a company’s client base.
What Companies Use Freemium?
Asana, Spotify, Dropbox, Hinge, Slack, and more adopt freemium models.
Can freemium reduce revenue?
Freemium enterprises may lose money if their conversion rate to premium users is low.
- Freemium businesses provide essential services for free and charge a premium for sophisticated ones.
- Though defined in 2006, the freemium business model stretches back to the 1980s.
- Freemium models are popular with software and online businesses.
- This business strategy can attract many early users, especially when apps and services are free to test.
- To function, the freemium model requires premium customers to have access to more services, such as storage, customizations, and customer service.