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Freemium

In: Business and Management

Submitted By ketayap
Words 1647
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Freemium: attributes of an emerging business model
Nicolas Pujol, author Pujol Enterprises LLC, Kirkland WA http://nicolaspujol.com; info@nicolaspujol.com DRAFT v1.1, revised 11 December 2010

Origins and types of freemium
An umbrella term for new and old commercial practices
Freemium is a term increasingly used in commerce to designate a business model using two products or services, or a combination of products and services. In such combination, one item is provided at no charge while a complementary item is sold at a positive price. Unlike what economists call tying, the free and commercial items are softly connected: the complement is not indispensable. The practice has existed for decades, although it carried different names and forms. The term Freemium was coined by venture capitalist Fred Wilson in 2006 and is gradually becoming a model that businesses identify with. Freemium relies on a free version of a product or service, and by design there are complements that can take various forms . Commercial transactions happen outside of what is given away. The delta between what is free and what is paid is called product differentiation. Freemium is sometimes mistaken with two-sided platforms. In the latter case, a company deals with different groups of customers. Each constitutes a market side that is statically established. There is no transition or conversion from one side to the other. In freemium however, free and paid users may constitute one general group. Each free user can become a paid user, and vice versa. However, we’ll see that even if not a platform, freemium may have similar attributes to two-sided markets. Types of freemium There are four differentiation strategies: by quantity, feature, or distribution.

Quantity differentiation is the most ancient: product samples have long been us ed in pre-sales situations, representing the zero price...

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