Freemium

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Freemium is a business model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features.[1][2] The word "freemium" is a portmanteau created by combining the two aspects of the business model: "free" and "premium". The business model has gained popularity with Web 2.0 companies.[3]

Contents

Origin

The freemium business model was articulated by venture capitalist Fred Wilson on 23 March 2006.[4]

"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."

After describing the business model, Wilson asked for suggestions as to what to call it. Within a matter of hours, more than 30 name suggestions were given by his blog readers. One such suggestion came from Jarid Lukin of Alacra, one of Wilson's portfolio companies. Lukin coined the term "freemium,"[5] and Wilson and his audience adopted it for the business model. The term has since appeared in Wired magazine and Business 2.0, and has been used by bloggers such as Chris Anderson and Tom Evslin. In 2009, Anderson published the book Free which examines the increasing popularity of this business model.

Freemium rate

A "freemium rate" is the ratio of free to fee services or products provided.

Examples

An early example of the freemium model working on the internet was Musicmatch Jukebox, an all-in-one music management tool that was first marketed with a freemium model in 1999. Most users could use the Basic/Free version, but a $19.99 upgrade provided extra features such as supertagging and faster ripping and burning. [6]

According to the New York Times, freemium is becoming the "most popular business model among Web start-ups."[7] Some of the most popular sites, such as Pandora[8], Flickr, LinkedIn, and Skype, use the freemium model, and Facebook is considering adopting the freemium model according to Yuri Milner, the CEO of DST, a Facebook investor.[9]

Freemium models

As defined by Chris Anderson[9]:

  • Feature limited
  • Time Limited
  • Capacity limited
  • Seat limited
  • Customer Class Limited

Use in direct mail

The word "freemium" is also used in the direct-mail business to describe a free sample sent to all recipients of a mailing.[9] A "freemium" is distinguished from a "premium" by the fact that the latter is only given to those who make a purchase, while the former is sent to everyone.


See also

References

External links


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