Wherever you look today, it seems that freemium plans are just about everywhere. As a matter of fact, over the past decade or so, it appears that freemium has become one of the most preferred and dominant business models on the market, particularly for start-ups and computer software companies.
What makes this business model highly enticing and appealing to a larger market audience, and to investors and companies alike, is that it attracts a huge following without the cost of traditional campaigns. At the same time, it also offers users a chance to get to know its offerings at no extra cost.
Despite its popularity today, there is still a cloud of confusion hiding behind the business model and how it truly works. Below is a primer on this offering and who currently leverages this type of framework.
What Is a Freemium?
The word freemium comes from a combination of “free premium”. This is a conceptual framework or business model that allows companies to extend its services to customers at a complementary level, a more ‘premium’ level, or one that requires additional payments or cost per service.
While a firm may provide a basic service or product for the market for free, it also extends upgraded features, services, and benefits at a price. Though the term was later on coined by and attributed to Jarid Lukin in 2008, the practice has reportedly long been held since the 1980s.
How a Freemium Business Model Operates
Now that you know the definition of what a freemium is, you might have a better understanding of how it operates. As mentioned earlier, this practice banks on companies offering their services to customers for free, all the while charging extra costs to consumers for add-ons they may want to avail.
This business model works by having its simplest and most basic service come with restrictions or limitations. This can come in the form of in-app advertisements, accessibility only made possible with an Internet connection, storage limitations, and the like.
Unlike the complementary services offered to customers at no additional cost, upgraded or premium plans do without these limitations. Instead, premium upgrades allow users to fill in what is lacking from the basic services.
Freemium, Startups, and Internet-Based Businesses
The freemium business model is often chosen by online or Internet-based businesses. This is because these companies are able to foster deep connections with their customers of all levels, while at the same time, encouraging other individuals to partake of add-ons or other services at extra cost.
Besides allowing users to enjoy games or services for free, the “free premium” approach also works well for startups and online services who are just venturing into the market as this framework is relatively cheaper compared to more traditional forms of marketing or campaigns.
"Try Before You Buy"
By offering audiences a "try before you buy" experience, companies are able to drive in traffic to their respective apps or websites.
By extension, these firms are able to convert more users to subscribe to their paid services as they get their users’ trust over time with the complimentary access given to them.
Some of the big names in the industry that have leveraged this business model are the video streaming platform, YouTube, Spotify, and even Dropbox. Besides the aforementioned, computer software companies such as game industries have also capitalized on this framework.
The Bottom Line
There’s a reason why many entrepreneurs adopt a freemium approach when it comes to running their businesses. If you think your online and subscription-based service could benefit from using this business model, make sure to explore what this conceptual framework has to offer.
