Whole lot of people are putting coffin to freemium model. But before you do that, there are a few important points that one needs to understand.
First of all, lets look at few products that were either declared dead or removed the ‘free’ tag:
- Google Catalog Search/Video and Dodgeball are dead.
- No further development on Google Notebook. Jaiku will be released as an open source Jaiku Engine project on Google Code under the Apache License.
- Jott, voice-to-text mail service has closed its free version (TC)
- Feedblitz (feed to email) service is not accepting free publishers anymore.
These were all free services that aren’t free anymore – some due to no traction, and some because of their core model.
Definition of Freemium
“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.” – wikipedia
It’s really important to note that Freemium means that free is part of your business model – and not the entire business model.
Freemium Needs an Extension
Before you declare freemium dead, do understand that freemium misses 1 very important part of your business model – the Food Chain
By food chain, what I mean is who in the food chain is going to pay for the “mium” in your free model.
Example – lead generation business. The whole leadgen business gives away freebies to users (they don’t charge users), but businesses pay lead gen sites for access to these users (for e.g. a typical apnaloan model).
Are these leadgen sites following freemium model? i.e. Free – for users, Mium – to customers.
To summarize: Difference between Users and Customers – Users:Free, Customers:Mium (entire Google/Yahoo model is based on this).
The challenge with any consumer focused business model, is of course to grow your user base, so that customers find it attractive to do business with you.
But before you charge your users, answer these questions:
- Where is the premium-ness of your product/service?
- Is premiumness in the feature (that a free user will pay for – to move up the feature-chain)?
- Is premiumness in the reach (so that somebody else will pay for your audience, i.e advertising)?
Of course, a lot matters on what value you are delivering to your users/customers? Is it incremental or something very substantial?
What’s your opinion?
Next Article: How to quantify “Value”
Do you even understand the freemium model? Read this -
http://wallen.typepad.com/wallen/2009/01/the-cost-drivers-impact-on-socalled-freemium-models.html
http://wallen.typepad.com/wallen/2008/10/freemium-can-be-a-viable-revenue-model-sometimes.html
http://www.charleshudson.net/thoughts-on-free-powered-business-models-and-why-time-beats-features
@Ravi, And I am questioning the very definition of freemium – it doesn’t considers the difference between users and customers.
Do you think justdial should start charging users?
The thing is if you go by pure definition of freemium model – it will be just one of the few models that work. But, if you extend the definition – you will see the entire picture and see why few cos. make so much of money.
Feature is not a ‘mium’ anymore. Tell me 10 examples where features have served as a mium.
@Ashish, I am sorry – I’ve read the article and your comments a few times but I don’t get it…
Do you mean to say – Google search is a freemium service? I don’t think so…
One must look at free part to generate leads to be able to sell the premium part. I guess, paying users come from the set of free users. Incase of justdial, google, yahoo – thats a different group namely advertisers/businesses…
Another important thing is that marginal cost of serving free customers should be zero (unlike sms based companies) so that we don’t get buried under the weight of free users… even if the service does’t take off…there’ll be no need to shut down the free part because it doesn’t drain away the resources…
The best case is when free users actually enhance the value of the service for everybody (network effect – like flickr) and have zero marginal cost….
nice read.. sometime back I read this article “is free the future” in wired..
say if 5% are premimum users and 95% using free services.. those 5% are paying up for the cost of serving rest of 95% as well.. so you should be able estimate %of premium users and determine cost of product efficiently.. for this model to work..
Other thing worth mentioning is, various products compromise of quality and give less features to free users.. better option would be to restrict quantity.. like maybe no. of days.. or something and provide all features to free users.. if possible
anyway you might like reading this as well.. http://gyani.info/gblog/2009/01/06/is-free-the-future/
Good read and thoughts… I do believe any “free/low cost” offering will most often land only in losses and requires tremendous scale on userbase to be able to get customers who are willing to pay a preimum (that too generate revenue of a scale to be able to sustain the “free” offering).
FREE SMSes on the web are surviving & improving too
Google Apps? $50 per user for added features
Google Earth? $400 enterprise version with better features
Evernote? Subscription for more bandwidth and Added Filetypes Sync
DropBox? $10/month for 50GB instead of free 2GB
Flickr? Pro users pay $25/year for more bandwidth and photo storage, higher quality photos
Remember The Milk? only premium accounts get Windows Mobile client for syncing
Wordpress.com? Pay to get your own domain linked instead of *.wordpress.com and lot more
Yahoo! Messenger? Free PC to PC calls and Paid Cellphone calls
Rhapshody? Pay to listen more than 25 songs a month
Zimbra? Paid and free versions
MySQL? free software, paid support
Above is the list of some of the products which charge only to people who need the premium feature set.
Freemium makes your product ubiquitous and people so used to it that serious user would want to pay for enhanced capabilities. Not many of the above services would be famous without a free version and not all of them making losses (does any?)
Its about giving enough features free to make service lucrative for first timers but charging a premium to those who become adicts and have desire for more. Easy!