What
Makes Freemium Succeed?
Picture:
《陰陽師》(Onmyoji), a popular smart phone game by Netease
Freemium is a business model that works by
offering a basic product or service free of charge while charging a premium for
advanced features, functionality, or related products and services. Fred
Wilson, the one who first raised this concept, gave examples such as Skype, Flickr、Trillian、Newsgator、http://Box.net、Webroot,
etc. These softwares/websites all have a free basic version and a
‘professional’ version with advanced functions and charging.
One typical Freemium model in China is QQ. Founded by Tencent, QQ is originally
a chatting software with free functions such as chatting, grouping, file
transmitting, voice/video call, QQ charges for ‘VIP privilege’ for users to buy
QQ show, decorate QQ space, have personalized ‘online outfit’ etc. Also, many
derived products of QQ also runs in Freemium model. In your teenage, have you
ever paid for purposes to ‘lighten icons for your QQ account’ to show off to
your buddies? Have you ever bought ‘green-diamond’ VIP to enable your QQ space
to have the music-playing function? Can you raise your QQ pet without paying
any money to keep it alive?
Picture: Game QQ Pet (left) and QQ Show
in chatting window (right)
Being attracted (or sometimes trapped) by
these Freemuim products, have you think of why these products can take out
money from your pocket, even if you can use it for free?
Outstanding
Product
The success of Freemium model is based on
its outstanding product which caters for a certain group of users, in other
word, a certain market. The ‘free’ can make the product draw new users in a
fast and low-cost way, which also builds up a barrier for other competitors.
Furthermore, with the scale increasing, the costs for operating for acquiring
new users decrease and finally, a small group of people within these users
become ‘premium’ users with their further demand. Those users who don’t want to
pay money or get expired from ‘free trial’ can experience premium service by
inviting new users, which also help expand basic users for the product. (also
there are other ways for them to get premium such as watching commercials or
downloading other recommended software, which also generates profit for the
product)
Interacting
and Sharing
The motivation for Freemium products to
expand their basic users rapidly is that they are usually software of high
levels of interacting. For users, the more people using these products, the
more value they have. Almost all the people chat with Wechat instead of phone
call because its convenient and free. So people are happy that more users join
in the ‘team’ and the may even recommend these software to friends to make more
‘free’ interaction. Similarly, in business, for Dropbox/Goole drive, besides sync
stuffs you can also use them to share documents with fellows and that will
greatly improve the efficiency. To some extent, you are ‘expecting’ others to
use it because this will make your life easy and convenient.
Future
– Challenge and Opportunities
What will Freemium be in the future? In my
opinion, the most challenge the
Freemium model facing is the protection of online copyright and original content.
Think you are CTO of Spotify, and there are tons of small websites that send a
person to pay your Premium and ‘steal’ your privileged contents for users and then
sell them on their websites. How can you manage a way/system that can prevent
this crazy duplication of these valuable original contents?
However, there is still a huge potential
market in Freemium model, for example, mobile games. Just like the picture on
the top of this article, players can of course play《陰陽師》(Onmyoji)
for free, but for those players who want to be strong and dominating in their
region, they will definitely pay for different ‘Premium’ services and equipments
in the game, as long as these services are attractive enough.
References:
Seufert,
E. B. (2013). Freemium economics:
Leveraging analytics and user segmentation to drive revenue. Elsevier.
Pujol,
N. (2010). Freemium: attributes of an emerging business model.
NetEase
Game Page: http://yys.163.com/
Posted by XU
Shuai (Kevin), 1155081710
on Jan 25, 2017
Hi kevin, Freemium is a very interesting topic and you have very good points! :)
ReplyDeleteHowever, the challenge of "online copyright protection" you mentioned could only apply to some extreme cases or some content providers.
From my point of view, one of the key thing about Freemium is the conversion rate. How many users in your user pool will finally convert to buy the premium version? It's also tricky to make a high-quality free version of the product on the one hand, and add additional features to the professional version which people would like to pay instead of continuing using the free version on the other hand. Lots of the Freemium model product are actually struggling with large costs of maintaining the "free" users.
If you can focus just on one specific type of Freemium model product instead of general discussion, you may find some other interesting points and have deeper insights about the Freemium model.
It is a fresh idea to utilize the Freemium business model nowadays. Onmyoji illustrates the Freemium model clearly and what I want to share is that freemium approach has been prevalant in the social media market. Social media startups adopts unique and effective ways to earn money. It is a wise way to run business, because this business model offers a basic service for free to customers and later upgrades companies's service or products for payment. Zapier serves as another good example. Zapier's freemium approach works by giving consumers a few zaps for free, and sold with its advanced features, users spend a little expensive than the previous ones to upgrade their accounts. What I an also concerned is about the challenges of Freemium business model. Suppose if target audience can have the basic service, and they do not have desires to upgrade. how can online retailers earn profits? Figuring out how much to give away for free is significant for business startups to run business in the social media market.
ReplyDeleteXieyi Xu(1155084062)