Freemium is not a magic ward that will work for every company or organization. For some companies, it may not be a good idea to employ it. Nevertheless, several companies across various sectors could benefit from exploring this model. In the following lines, I have attempted to illustrate the different criteria that indicate an advantage to using freemium.
The concept behind freemium is that the more of a product there is, the more demand there is for its complimentary products. More the people that have ipods, then more the people that want an ipod protector sleeve. In other words,
“When the supply of a product increases, the demand for its complimentary products increases.”
Here, the idea is to make available free products to a whole lot of people, thus bringing about an increased demand for the complimentary products.
Based on this logic, following are 4 characteristics that indicate if your business could successfully employ freemium.
1 A quality free product that people want!
The motive with freemium is to release a free product and get it out to as many people as possible. In order to do that you have to give them something they want. An annual report from the stockholders’ conference written in size 9 font with no pictures would probably not be the most popular item. Instead you have to have something that is valuable in itself – even if just enough for people to want to download it.
2 The product that people want should be non scares.
Scares products are those that have a marginal cost of production. Non-scares products are free or virtually free to duplicate, thus having zero or marginal cost.
Once as a producer I have produced a book, a video or a piece of music, it costs me virtually the same whether it is made 1 or 1 million copies of. (More about the economy of non-scarcity)
The reason freemium can work is that the free product costs close to nothing to duplicate. Thus once it is produced it costs me the same to have it distributed to 1 or 1 million users. Owing to this truism, you only have to convert a small percentage of the users to paying costumers.
However, in order for this to work, you need a non scares product you can distribute. If you start handing out free cupcakes to sell cooking lessons, it will probably not work. On the other hand, if you can get your piece of music out to a lot of people, the ensuing complimentary concerts, related merchandise and luxury editions might be more profitable than selling the CD.
3 Large reach
In most cases, only a small percentage of the users of the free product end up buying the complimentary product. So in order to generate sufficient revenue from such small percentages, the group(s) you will address needs to be quite large. A book for smurf enthusiasts in Luxembourg might only have a hundred downloads, and if only a tiny percentage of these end up buying something, it will not make good business sense. Then again, you can take the example of Paolo Coelho. He releases free copies of his books in every language online. This book download has a very large reach, and even if a small percentage of those downloading convert as paying customers, it amounts to substantial revenue.
You don’t necessarily need such a large reach, but you need to first weigh if it is large enough.
4 Premium or complimentary products
The logic of freemium is to give away something and make money by selling complimentary products. Even though you might not have any current products that are ideal for this concept, most companies can adapt their business model accordingly. (see Implementing freemium)
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2 Comments
The word is ’scarce’.