Before diving into our exploration of the freemium model I thought it would be useful to define exactly what the model is. Definitions vary slightly from source to source, so let’s nail down what the “freemium model” is. Fred Wilson, back in 2006, defined the model like this:
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.
And this has served as the general description ever since. The Wikipedia article removes some of the specifics to make it slightly more general:
Freemium is a business model which works by offering basic services for free, while charging a premium for advanced or special features.
This slightly more generic definition removes some of the specifics from Fred’s description to give us a concise definition of the model. But it’s almost too generic, and doesn’t emphasize what I feel is a critical component. So I’ve come up with this slightly modified definition:
Freemium is a business model which works by attracting customers through a basic free service, then monetizes a subset of these by charging for premium features.
The distinction is small, but important. The free service works as a hook for the premium service and most of the subscribers usually start by using the free service. In other words, the basic free service serves as a loss-leader for converting free members into premium subscribers.
And there we have it, our standard definition of the freemium model. Next time we’ll dive into the various types of freemium models currently being used by online businesses.
{ 0 comments… add one now }