Freemium is to provide basic services for free to acquire many customers, and to have some users purchase advanced features and easy-to-use paid versions to increase profits . Business model.
Freemium is a coined word that combines “free” and “premium” created by American investor Fred Wilson, and was written in detail in Chris Anderson’s own book “Free”. It became known at once.
Until now, there have been “free models”, and the mainstream was to make profits from advertisers rather than from viewers and readers, such as radio and free papers, but as IT advances, the cost of content and services is reduced. Now that we can, we have created a service that focuses on profits for our users. Therefore, the freemium model can be said to be a part of the free model.
- History of freemium models
- Difference from free sample free trial
- Freemium billing rate
- The key to the success of the freemium model
- Additional function type
- Members only
- Membership privilege type
- Enhanced type
- Restricted open type
- Additional capacity type
- The New York Times
- Social games
- Free removes user hurdles
- Can be expanded widely while keeping costs low
- Free users are collaborators who improve the product and spread the word of mouth
- As the number of users increases, it becomes easier to share information and the usability of the service increases.
- New products and services
- Highly specialized and limited content service
- Simple service with complicated functions or not divided into free version and paid version
History of freemium models
Prior to the advocacy of the term freemium, products have been promoted in the software world since the 1980s by offering free versions with limited functionality and expiration dates.
With the rise of Web services, this business model has become popular due to its high affinity, and freemium is being adopted at the same rate as traditional paid services and software. Behind the realization of the freemium model is the fact that web service construction has become cheaper . Now that resources such as servers for storing files and running services can be procured at low cost, it’s easier to achieve a surplus even with a large number of free users . It is a point. First of all, the fact that it has become possible to open the service to users and make improvements while receiving feedback is also accelerating the increase in freemium models.
Difference from free sample free trial
Free samples used to distribute cosmetic and beverage samples for promotional purposes, but they are actually expensive, so manufacturers were trying to attract more users in small quantities to generate more demand.
In other words, the free sample aims at 10% free users and 90% paid users, while the freemium model aims at 90% free users and 10% paid users .
The difference between a freemium and a free trial is that, like the freemium, the purpose of the free trial is to reduce the cost of acquiring customers, and we will turn leads into customers through service introduction and introduction support. However, there are two differences between freemium and free trials:
For freemium models, there is no limit to how long you can use the free plan. Free trials, on the other hand, have a limited period of time when you can use the service.
The free trial provides the user with all the features of the service. In contrast, free users of the freemium model can only use some of the features included in the service.
Freemium billing rate
The feature of the freemium model is that it increases the number of users with the free version of the service, and aims to purchase the paid version for a few percent of the users.
Most of the time, free users make a profit by charging more than 90% and less than 10% of paid users , and how to reduce the cost of free users is the key to success. I will.
It can be said that it is a business model that can produce great results because the Internet has low basic costs and marginal costs.
The key to the success of the freemium model
It’s important to have a clear distinction between the two companies and a not too high hurdle to encourage the transition from free to paid. The requirements are that the service itself is attractive, easy to use and introduce, and that the boundary between paid and free services is clear and the superiority of paid services is clear.
The free version is more than just a trial version, and if you can’t provide a great experience that can create fans who want to invite other users, you won’t even get a large number of free users . On the other hand, if the free version provides too high functionality, there is no reason to charge for the paid version, so it is necessary to design a service that shakes the user’s psychology that it is convenient but wants to use it a little more conveniently.
How low can we provide the service?
The freemium model spread rapidly and became a hot topic as digital content became more widespread.
It comes from the low cost that is characteristic of digital content.
Above all, how much you can reduce the cost of free users is a big difference in success.
Building relationships with existing users
Since the freemium model is basically free to use, it is also a fact that users can easily leave.
Considering the tendency that the cost of tampering with existing customers is smaller than the cost of acquiring new customers, it is important to build relationships with existing users.
For example, it is effective to take actions to nurture customers, such as sending emails to users who are less frequently used and holding campaigns frequently.
Even users who think that it is okay at the beginning can shift to paid users if they can change their consciousness to have to.
Function to transfer free users to paid users
Additional function type
During the period when it is provided free of charge, there are restrictions on functions and the number of people who can use it.
However, there are many services that lift such restrictions by making a paid plan.
By making a paid plan, the restricted functions will be released and the upper limit of available capacity will be relaxed.
This is a profit model that charges you as needed, rather than registering as a paid member. Many social games, such as “buying weapons for XX yen,” fall under this category.
It is a profit model that is often found on websites that distribute content for users, and it is a service that lifts content viewing restrictions by charging. This includes the New York Times and many media services.
Membership privilege type
For example, there are services where you can receive benefits by paying, such as being invited to a real event limited to paid plans. The member privilege type is a profit model in which you can get benefits such as discount coupons by becoming a paid member.
The main method of freemium, Skype, an internet telephone service, offers free calls between the Internet and a fee for connecting to landlines. In addition, some free software offers extended functions for a fee.
Restricted open type
The restricted open type is a method that exposes the functions that are restricted in advance in the free version and encourages the transition to the paid version.
Additional capacity type
It is a profit model that is often seen in cloud services, and photo sharing services and online storage services (services that enable data to be stored on the net) that can add capacity by charging provide free up to a certain space. If you wish to use more than that, we offer it for a fee.
In addition to these, there are also examples of practicing freemium with various ingenuity as follows.
Save on monthly charges
If you have multiple paid plans, the higher the plan, the lower the usage fee per person, the more functions you can use, and the more cost-effective it will be.
Support will be generous
During the free period, you will often not be able to receive inquiries about features or telephone support.
By becoming a paid plan, you will be able to receive such support, and you will also be able to receive support for introduction.
It is a method to hide the advertisement displayed in the free version in the paid version.
Addition of variations
This is a common technique used in online games, where you can participate in the game and provide basic items for free, and you can also provide useful items in the game for a fee.
Priority service provision
By using a dedicated line during busy times, you can prevent the connection from becoming difficult and the quality of the connection from deteriorating.
Freemium representative company
Dropbox is a service that allows you to save your computer’s folders on the cloud and save storage space. The appeal is that you can access your data anytime, anywhere.
The free version has limited capacity, but the paid version will significantly increase .
The free personal plan has a capacity of up to 2GB, but the paid personal plan (Dropbox Pro) has storage expansion up to 1TB.
In the business version, instead of paying a monthly usage fee of 1,500 yen, the capacity is unlimited.
Initially, Dropbox’s freemium strategy didn’t work, and although the number of free users was increasing due to “search-linked advertising” using search engines, it was not possible to increase the number of users of paid plans.
Therefore, when we launched a promotion strategy of “increasing storage capacity instead of introducing new users,” the number of users increased explosively at a lower cost than search-linked advertising.
However, even now, there are problems with the profitability of the service as it grows even further, and of the more than 500 million users, only about 4% are paid users.
For this reason, we are working to enhance corporate accounts that require larger capacity and higher quality services.
Additional capacity type
Among the multiple business models that LINE is also running, we are running a splendid freemium model that charges paid stamps to earn revenue.
Skype is a service that allows you to have free conversations between PCs using the Internet line.
If you register for the paid version, you can make unlimited calls to landlines.
Evernote is a company that provides document storage and sharing services, and is a company that succeeded in freemium by improving the service itself.
It has been announced that among users who started using Evernote’s free plan, the rate of changing to a paid plan after 30 days will be 0.5%, 1% in 6 months, and 6% in 2 years. This data shows how convenient the product is a factor in the success of the freemium.
The New York Times
The website of the New York Times, an American information newspaper, has also successfully adopted freemium. The New York Times freemium model is called paywall , and you can browse up to 10 articles a month for free, and you have to pay for more.
When we started paywall in 2011, the number of free articles was 20, but since the number of subscribers was sluggish, we changed it to 10 and the number of subscribers increased steadily.
Determining how much free service will be provided is a difficult task, but it is also a good idea to adjust the content of the freemium while watching the reaction of users, as in the New York Times.
Slack is an online chat tool that emphasizes team communication. It can also be linked with tools of other companies, and has all the functions to improve business productivity.
In the free free plan, you can use the normal chat function, but you cannot use the functions related to external access or voice / video communication with multiple users. It is suitable for use when considering communication tools for teams.
By reducing the functions with the free plan, you can plan the timing of switching to the paid plan. However, it should be kept in mind that there is a risk of withdrawal if there are too few functions.
For the functions that you want to appeal with the paid plan, consider the plan contents that are easy for users to experience while limiting the functions.
By making Slack a paid plan, you can receive relaxation of functional restrictions such as unlimited viewing of past messages, video calls with multiple people, and unlimited number of links with external tools.
Restricted open type
Spotify is the world’s largest provider of music streaming services. The free version offers a basic plan for free to attract users.
In the basic plan, some functions such as arbitrary playback of songs and offline playlist creation are restricted to differentiate from the premium plan.
By switching to a paid plan of about $ 10 with a limited function plan setting, you will be able to skip songs in the playlist and download songs.
A trend was born in which users who were attracted to the free plan upgraded to the paid plan, and built a high-profit model in which about 50% of users subscribe to the paid plan .
Services for enterprises are complex freemium models with multiple usage restrictions, and while it is often necessary to stress users and encourage them to move to the premium plan, services for general users. Now you can build a freemium model relatively simply.
Restricted open type
It is no exaggeration to say that almost all social games are freemium models.
In fact, most people don’t pay for gachas, but one in ten pays.
By other means, social games do not have traditional games, such as clicking on advertisements, introducing friends, buying things on the site, etc., approaching users and making profits from operation Is designed to be.
Traditional video games and computer games purchased paid game software, and after that, no matter how much you played, it was basically free, but in the case of social games, many people download it because there is no wall of initial charge. I will.
And 10% of the free users are paying users, and they are making money.
Advantages of freemium
Free removes user hurdles
By providing basic services and products for free, there is a point that users can easily experience the goodness of services and products. Even when upgrading or purchasing options, users will be able to pay with some peace of mind because they are experiencing it for free. Basic functions are provided free of charge, so the threshold for using the product is low . For this reason, it is possible to acquire a large number of users, and it will be spurred to make it easier to recognize and expand products and services.
Can be expanded widely while keeping costs low
Due to the extremely low cost of multiple digital products, 90% of people can now make a profit even if they are free by distributing a large number of free samples and about 10% of them subscribe for a fee. In the case of freemium, content and services are digital, so the cost to free users is low .
Therefore, no matter how many free users increase, you can make a sufficient profit from paid users.
You can expect word-of-mouth of users who used the service, and potential customers who saw the word-of-mouth can also create a virtuous cycle of attracting customers to try using the free version for the time being. In addition, on the business side, by having customers experience it first, the feedback received from users will increase, and it will be possible to not only improve products and services quickly, but also to attract more customers. In order to develop a new business, it is first necessary for many users to experience our products.
Free users are collaborators who improve the product and spread the word of mouth
By having as many people as possible experience high-quality services for free, there is a tendency to explosively increase the number of users through word-of-mouth .
You can also attract more users by offering free users the benefit of referrals to friends. “Free use” is one of the factors that makes it easy for users to introduce their products. Therefore, if you can feel the convenience of the product, word of mouth will spread and it will lead to further recognition and expansion.
Since it is used free of charge, it is difficult to complain, and “free” is useful not only for word-of-mouth communication but also for recommending it to friends. Dropbox, which provides online storage as a freemium, has succeeded in its business model of increasing the capacity available for referrals to friends. After developing a new business, it is important to repeatedly improve and verify the effects based on user feedback to provide better products. However, in order to get feedback, we first need a large number of users. Therefore, by adopting freemium, we can get feedback from many users even in new businesses.
Also, the fact is that there is more feedback from users who use the product for free than paid users , for example, free of charge, which dislikes the majority. If you receive product requests from users, you can improve the service without having to recruit specific users.
In addition, providing free users with the benefit of introducing friends creates a virtuous cycle in which users attract more users.
Disadvantages of freemium
Compatibility with services
Incorporating Free Mimum without giving due consideration to compatibility with products and services may result in the provision of services and products for free. Before adopting freemium, it is necessary to thoroughly analyze the business and the services and products provided, and carefully consider what to offer for free and where to pay.
When developing freemium, there are things that are not suitable for business. Since most of the costs are to provide products and services to free members, it can be said that it is not suitable for businesses that require large labor costs, and it is also unsuitable for businesses that cost themselves to provide products.
Even if the freemium is effective when launching a new service, it is necessary to secure multiple revenue sources in order to increase the revenue scale after that.
It takes time to turn a profit
Another disadvantage of the freemium model is that it takes time to turn a profit.
Due to the nature of providing basic functions for free and gradually acquiring paid members, it is difficult to turn a profit from the beginning of business development, and even if the number of members of the free plan increases, you must subscribe to the paid plan. If you do, you will not make a profit.
Until the freemium goes into the black, it will not be possible to continue the business unless the cost of providing the service can be tolerated.
so that. It is necessary to design a sustainable business plan, such as estimating the cost required to operate the free plan, predicting the break-even point, and operating from a long-term perspective .
Services suitable for freemium
As the number of users increases, it becomes easier to share information and the usability of the service increases.
Services that are expected to increase the number of users and services that have abundant basic functions and are highly convenient are said to be compatible with freemium. Businesses suitable for freemium are generally businesses that develop businesses based on digital data. This characteristic can be seen from the fact that all the services listed as typical examples of each revenue model are services provided via Web content and the Internet.
In this way, freemium is more difficult to develop in other businesses than “it is compatible with services provided via the Internet”.
New products and services
For products and services that have never existed before, free provision is considered to be an excellent method as a step to help people understand the value of the product.
Services not suitable for freemium
Highly specialized and limited content service
It is difficult to explode the number of users through word-of-mouth for products with limited users such as enterprise software, and it is also important to use the service frequently to increase the chances of upgrading to the paid version. ..
Simple service with complicated functions or not divided into free version and paid version
In such cases, a subscription model or a business model centered on advertising from a third party is suitable.
Limitations of freemium model
The freemium model reaches its limits when the percentage of paid users does not grow as expected .
For example, Pandora, an American video service, has adopted a freemium model that charges a monthly fee of $ 1 when playing music for 40 hours or more a month, but the number of paying users does not increase and there is concern about profitability. I did.
Therefore, we changed the freemium model, abolished the billing from users, and made it a model to earn advertising revenue from companies, and it was very successful.