The best things in life are freemium

The best things in life are freemium

With a freemium business model, you can give stuff away and still make money. Here’s how.

Have you ever noticed how many of todays biggest companies give away their best stuff for free?

Facebook? Free. Flickr? Free. Google Search? Google Maps? Google Mail? All free.

In many cases, these services represent only one side of the freemiumoffering and exist alongside another aspect that has to be paid for.

So how does the freemium business model work? Well, if youre getting something for free, its going to be for one of these reasons:

  1. Youre an audience for ads. For example, radio stations and most news websites. If youre paying for content, youre a customer; but if youre getting it for free, the advertiser is the customer and youre the product.
  2. By using a service, youre creating value. This probably means youre a part of some kind of community or customer base that others will pay to access. For example, most LinkedIn members use the site for free while a few pay for a premium service. But its only because of those hundreds of millions of free users that the premium version has any value.
  3. Theyre counting on getting you hooked and making you pay later. Most of the highest-grossing iPhone games, including hits like Candy Crush Saga, are free to download. The catch is, you then end up paying for upgrades or in-app purchasesto keep the fun going.

What all three of the above approaches have in common is that they’re about forsaking immediate revenue in favour of reach. Build that reach and you can squeeze value out of it further down the line. That’s the essence of freemium.

Freemium is a phenomenon that mainly exists online because the potential audience is almost limitless and the cost of providing content or services (on a per-user basis) is almost zero. But it has its place in the non-digital world too.

Take conferences, for instance. Delegates who attend to try and win business will pay handsomely to hob-nob with potential clients, who are allowed in free. Similarly, publishers will shower anyone on the client-side with free magazine subscriptions, while the poor folks on the supply-side will have to cough up.

So how can you make freemium work for you?

  • Do your research. Make sure you understand the value your business offers from the point of view of your customers.
  • Segment your audience. Understand that they’re not all the same. Which groups have more or less money to spend? Which groups are more or less engaged with what you offer? How can you target and best serve them all?
  • Nurture a community. Much of the value of freemium services comes from the communities of users they create. Show them some appreciation.
  • Experiment. If you don't have all the answers, don't feel bad – nobody really does. Even big freemium names like music streaming service Spotify still have question marks over their business models. One thing is for sure: freemium will play out differently for every business, and you won’t know what works for your audience until you try.

Robert Bain is a freelance writer and editor with an interest in business and technology.

Robert Bain Freelance Writer and Editor CPL
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