Freemium - Special Report

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Jenny Liquete
Entrep 2013

2. Free + Premium
• a business model where in you give away a core product
for free and then generate revenue by selling premium
products or add-ons to users
• a premium is charged for advanced
features, functionality, or virtual goods
• Common businesses or products that apply this model are
software, media, games or web services

3. Traditional versus Freemium
Business Model

4. Why use Freemium?
• Accessible to the market
• Psychology of “Free” (attracts new users)
• Great marketing strategy
• No marginal cost to digital goods

5. Disadvantages
• Value perception – since the basic package is free, customers
might have the impression that it has low value
• More freeloaders than paying customers might lead to higher
operating cost than the money generated
• Offering too many features in the free version might prevent
paying customers, while too little might generate very little
interest
• Needs time to work – customers should be engaged first to the
free version before considering jumping to the paid one
• Rob Walling (tech entrepreneur) likens Freemium to a
Samurai sword. "Unless you're a master at using it, you can
cut your arm off"

6. Criticisms
• Entice users to spend money
• Lawsuit filed against Apple due to poor authentication when
making in-app purchases
• Impact on children (some games which targets children cannot
be completed without in-app purchases)

7. Steps to Making Freemium Work
1 Limit free offerings to avoid cannibalizing your paid customers.
Expect your free-to-paid conversion rate to be less than 5%.
2 Promote both free and paid offerings, rather than focus just on
acquiring paid users.
3 Create an incentive for free users to refer their friends to your service
or product.
4 Clearly distinguish between free and paid plans, so users can see
value in paying for more.
5 Create a natural progression from free-to-paid features, such as the
option to buy extra storage space on a cloud service once a user runs
out of free space.
• Source: WSJ reporting

8. Gaining Success in the Freemium
Business Model
• Be viral – easy to access, easy to share (value of free users)
• Offer great free products
• Find the right balance between offering impressive
features while still making the users want to purchase the
premium items
• Constantly generate interest (ex. Temple Run)

9. Examples

11. Knowledge-Sharing
• Allows us to gain access and knowledge from the free
programs
• Develops creativity and generates more products

12. Sources:
• www.freemium.org/wp-content/ebook-101.pdf
• www.accountingtools.com/freemium-pricing
•www.wisegeek.com/what-is-a-freemium.htm