The term freemium is coined using two powerful words ‘Free’ and ‘Premium’. It describes a business model where in you give away a core product for free and then generate revenue by selling premium products to a small percentage of free users.……Download the ebook explaining freemium
The internet phone service Skype is a prime example of the Freemium business model. The program that enables you to call between computers is offered free. If you want to call from a computer to a landline or have a voicemail associated with your Skype account you have to pay. The free program has hundreds of millions of users and only 10% of these free users are paying customers.
This succinctly illustrates how Freemium has become a very popular business model in the software and internet services industry. Similar successful models are also emerging in the publishing, consulting and music industry. For an introduction to a range of example see ‘Tools and Cases’
How is this possible
In most freemium models less than 5-10% of the end users eventually buy something. When viewed from the traditional business point of view this does not make much financial sense. It is akin to giving away 100 apples for every 5 pears you sell.
In spite of this things have changed. Thanks to innovations in digital production and distribution via the internet. This has created the possibility to copy and distribute free products to a larger group at very low or minimal costs. It is precisely because of this that it is easy to create a viable business model from selling to only a small percentage of end/free users.
For more information on this please see “Freemium Logic”
For a brief introduction to freemium, you can also download the freemium ebook.