Freemium[1][2] is a business model that works by offering basic services for free, while charging a premium for advanced or special features. 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]
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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 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
- ^ JLM de la Iglesia, JEL Gayo, "Doing business by selling free services". Web 2.0: The Business Model, 2008. Springer
- ^ Tom Hayes, "Jump Point: How Network Culture is Revolutionizing Business". 2008. Page 195.
- ^ "A Business Model VCs Love". Business 2.0. 2006-10-01. http://money.cnn.com/magazines/business2/business2_archive/2006/10/01/8387115/index.htm.
- ^ "Fred Wilson's blog, A VC". http://avc.blogs.com/a_vc/2006/03/my_favorite_bus.html.
- ^ "The A VC comment suggesting "Freemuim"". http://www.avc.com/a_vc/2006/03/my_favorite_bus.html#c15324948.
- ^ Musicmatch Jukebox 10.0 Review
- ^ Ad Revenue on the Web? No Sure Bet
- ^ The Freemium Model And A Desktop App Get The Thumbs Up With Pandora One
- ^ a b c Facebook gets $200 million investment from Russian firm
External links
- Blogging for Dollars - Wired magazine
- Name That Business Model
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