Examples of the freemium business model: Apps and more

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It is easy to think that apps and games are the only examples of the freemium business model. While apps are perhaps the most common application of combining a free and premium tier, other businesses use the approach. As illustrated below, the model tends to work well when marginal costs of serving customers are low, there are advantages to serving a large customer base (even if many are not paying), and some customers are likely to upgrade because of their experiences with the free offering.

Apps, online services, and other software

The most common example of the freemium business model is apps. A high percentage of apps are offered for free, with ‘in-app purchases’ (or micro-transactions) to provide additional features, lives, or customizations to the game or service.

The model is also common in online services and software – having a Google account is for example free (with access to Gmail, Google Drive, Docs, and many more services), however for a monthly fee it is possible to upgrade the amount of storage available from 15GB to hundreds of GB.

Benefits of the freemium model

  • The marginal costs are very little – there is little to no direct cost associated with each non-paying user.
  • It may be easier to get existing users to upgrade to become paying customers than it is to convince users who have never used the service before to purchase the app.
  • There may be network effects, where users benefit from the more other users that are also on the app. Allowing free downloads of the app establishes this large user base, which may be necessary to attract paying users.

Museums and art galleries

Museums and art galleries are an interesting example of the freemium model beyond electronic services. Although many museums and galleries charge for entrance, some allow free admittance and charge only for certain exhibits. Others provide certain times where the public is able to attend for free while charging on more peak time periods.

Benefits of the freemium model

  • Expanding the reach of the museums and art galleries may connect with the mission of the organizations for increasing awareness of art and history – and particularly so if they are charities.
  • Higher general attendance can help generate donations – wealthy individuals and organizations who support the locations value a high level of attendance
  • Allowing free attendance increases interest in the arts and history – important for the long-term success of these locations. Those users that attend free now may be more likely to attend paid exhibits many years later.

Online education courses

The freemium model has been adopted by online education courses, such as Coursera or EdX. Such  MOOCs (Massive Open Online Courses) follow the freemium model – allowing users courses for free, however charging a fee for certificates or other premium features.

Benefits of the freemium model

  • Fits with the original founding of the organizations – to provide free access to education
  • Makes it easier to gain the support of educators, who may be motivated by the exposure to a large audience (typically far more than in traditional university classes).
  • While the marginal cost of providing the education is essentially zero, there are some costs associated with certificates – the model allows the majority of the offerings to be provided without charge, with fees only collected where costs are incurred.

News websites

While news sites are commonly subscription only, or entirely free, others combined the approaches with a freemium model – allowing access to a certain number of pages or sections of the website before users need to subscribe to the site.

Benefits of the freemium model

  • It is hard to get users to subscribe to a publication if they have not read it before
  • The marginal cost of serving each impression is essentially zero
  • Some money can be made from serving ads to users visiting for free

Pay what you want digital downloads

A final adaptation of the freemium model is the ‘pay what you want’ approach to digital downloads. In 2008 Radiohead released the album In Rainbows as a pay what you want – allowing users to pay more or less than a regular album, or opt to pay zero and download the music free of charge. While this approach is not mainstream (a lot of users will simply download for free), it does potentially increases the exposure of the music, while discouraging illegal downloads.

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