Freemium is Not a Business Model
markevanstech.com
markevanstech.com
Most 'freemium' MMOs are Korean. I don't mean to make a generalization, but is the Korean gaming culture much more serious than the US/EU one, and thus this model is much more successful in Korea? Many (if not all) of these Korean MMOs are available in the US, but I have no idea if the nonpaying/paying gamer ratio is better or worse, and those figures might unfortunately be private.
I'm no expert here, but these guys seem to believe addon and premium content will be the main business driver for MMOs long-term and try to make that point: http://www.techcrunch50.com/2008/conference/presenter.php?pr...
With something like, say, the poll service from the article, there's no social incentive to upgrade, and the cost of doing so is non-trivial (more so than, say, a $1 sword).
There's a difference between "hey, now that you're hooked, buy this $1 thing" and "hey, now that you're hooked, buy a $20/month subscription"
Why don't more freemium services allow one-shot addon purchases instead of subscriptions?
I know one of our sites is going to help soothe the pain of purchases by buying "credits" in batches that can be spent in different ways rather than requiring a CC# every single time they want to buy something.
They have the advantage, though, of having a huge community and thus a good deal of peer pressure incentive to get the extra bling. That, and your avatar is a "stupid newbie" picture until you buy your own.
This works great in social networks or game worlds - not so great if you're running a site that does poll aggregation technologies.
Which means "yes, it is a business model."
The key to Freemium is the same key to crippleware: give away enough that a user can experience enough of the product to acknowledge its value. Keep enough back that you can charge for it. That balance is hard, but not impossible.
The strange thing that I've found over the years is that the balance requires creativity to pull off. Using a magic number (>1000 accts, >100 friends, >2G of space) is a mark of being lazy. The question whether you can offer substantially new abilities to the customer. Something that makes the product different in a way that isn't a simple extrapolation of what it already does.
The fact is, I don't think its a business model either. Its more like large scale marketing. The real business is the paid model, and offering something for free is merely a way of getting users to come to your site and gives you an opportunity to convert them into paying users. And as a marketing method, its pretty bad for exactly the reasons you mentioned.
This is for the WEB though where cost/user is low and cloning a product is easy. Other platforms are vastly different.
Which is nice. I prefer old-fashioned biz models where you put out a product and quickly find out if people are willing to pay for it.
I can count web freemiums that made more money than their free counterparts on half a hand.
If anything, this article is a good description of how freemium can work. It seems to work well in the corporate market and it doesn't work when there are only minor differences between the free and pay versions of a product.
It's all about finding the right complements of your core business that people will pay for. Whether it's an ad-free service (flickr,basecamp), access to critical resources (most every dating site), or nice software that works best w/ your hardware (iTunes on windows).
The two variables you want to track especially closely are the per customer cost of acquisition and profit per customer.
//the OP is either linkbait or just dumb
I think one interesting case study of the Freemium model is iPhone games. It seems to me that most people want more than 1 or 2 levels and are willing to play only after they get a chance to test if the game is actually fun.
With most freemium websites, the free service is offered perpetually, and thus the utility of keeping the free stuff stays the same as the first time you used it.
About 12 years ago there was a circuit-board layout program (PADS-PCB) that followed this model. The paid version started at about $900 (and went up to about $5,000 IIRC depending on features you wanted) and the free version was limited to small circuit boards and 70 components. I downloaded the free version to use in my "basement business" and never needed to upgrade: 70 components was plenty for me. Talking to a salesperson a few years later, I found out that the company lost money hand-over-foot because only relatively few companies needed to build boards larger than the freeware version could handle: the market was changing and electronic component integration was increasing so a single part could now do what a couple years before would have required 5-10 parts. Most of the companies that were happy with the free version would have had no problem paying the $900 had the free version not been available. The software was excellent and even the free version would have been worth the $900, but obviously if it did what you needed, there was no reason to pay.
My first business distributes an open source app and sells a paid version of it. We've been in business for 7 1/2 years now and it's been my sole source of income for 7 of those (subsequent business attempts aside :). But that's targeting businesses, and not necessarily small ones either. The freemium side of open source works to a certain size in the corporate world, because of things like the perception of support. But in this case it's software as an install not a service, and so there are problems with scale.
My next business tried to sell something to individuals (ah, much better than consumers :), and that was really tough. I discovered that about 99% of our revenue was going to come from advertising, which hit a plateau and couldn't continue to grow like we needed. C'est la vie.
My newest business is again targeting business users, again with a kind of freemium model (we offer a basic free account), and I really think we might be onto something big with it this time. So it can definitely work, but it does have its own set of challenges, and sometimes they can be killer ones.
I guess wholesale stores like Costco and Sams club are flawed because people don't need more food than what they can get at a cheaper unit price. Just like buying groceries wholesale gets you the better deal by virtue of unit price, it's the same with Freemium.
Let's look at BaseCamp. BaseCamp under Mark's logic is a flawed product because no one ever manages more than one project at a time, which is what you are limited to with the free version. It only makes sense to buy in bulk what you can get for free because more often than not, you get more for what you pay for.
I don't think freemium users are missing the point of business, I think Mark Evans is missing the point of business: make money.