Freemium is latin for ‘not really’

“Free-to-play isn’t just a business model. Free-to-play is a marketing strategy. It’s a way to get people over the hump of trying out your product. It gets rid of the friction that happens when you charge an upfront fee.” Mitch Lasky

What do products Netflix, Apple Music, SurveyMonkey, Stan, Game of War and Monster Legends have in common? They don’t require any purchase to sign up. These companies that all have top grossing apps don’t even require a purchase to first use their products. You can listen to all your favourite music, watch all your favourite TV shows and play mobile games, until your hearts content, or the app requires a purchase to continue.

photo source: http://www.geekbinge.com/wp-content/uploads/2014/11/South-Park-Freemium-Is-Not-Free-Review.jpg

Now at this point you might be wandering, why are these companies so profitable and why is there a ‘South Park’ character telling me Freemium is latin for ‘not really’?

Well to answer the first question I’m going to have to talk about the social media revenue models.

Freemium model: SurveyMonkey & WordPress.

 source: http://www.cavucommunications.com/wp-content/uploads/2015/02/surveymonkey_logo_380.jpg

These models works by offering a basic service for free, while charging for a premium service with advanced features to paying members.

The benefits of using this model is if people need the extra features of a website like SurveyMonkey they are going to have pay for the premium. A drawback is if the consumer can get away with using the free product, they’ll never need to upgrade or pay.

Subscription model: Netflix, Apple Music & Stan

Stan TV 30 Day Free Trial source: https://www.comparetv.com.au/wp-content/uploads/2015/03/stan-30-day-trail.png

These models: Sites using the subscription model require users to pay a fee (generally monthly or yearly) to access a product or service.

The interesting thing about this model in today’s age is that it often works as a freemium model too. Popular video streaming services like Netflix & Stan offer a free months trial for the product and then require a subscription that be cancelled anytime. Other sites like Google Music, Spotify & Apple Music offer a discount such as $1 for 3 months and then require a subscription.

Virtual Goods: Game of War, Candy Crush & Monster Legends

 source: https://i.ytimg.com/vi/Qz9S1RvNRKQ/maxresdefault.jpg

These models: Users pay for virtual goods, such as weapons, upgrades, points, or gifts, on a website or in a game.

The virtual goods model that are successful are the real money makers in online products. In January, app testing firm Swrve  released a report stating that half of a game’s in-app purchase revenue comes from just 0.15% of players (which is insane!) This shows that consumers that get hooked on these mobile products, are willing to constantly pay to advance further in a mobile game.

To answer the second question, I’ll have to start with a quote from the South Park episode ‘Freemium isn’t Free’.

“It’s all about finding the heaviest users and extracting the most amount of cash from them. That’s how you get addicts to spend $200 for a game that isn’t even worth 40 cents.” the cackling Canadian game minister explains in the South Park episode.

While the segment is a satirical, biting look at the current state of free-to-play, it’s certainly not off the mark. With mobile games so heavily invested in the model (and with no other as-successful funding methods), it’s not likely to change anytime soon, even if we wanted it to.

With the much seen success of these companies and how they’ve used these social models that revolve around ‘Freemium‘, it’s evident that it is staying around. But it is important to remember for businesses and consumers alike, Freemium is ‘not really’ free.

Ref:

http://mashable.com/2009/07/14/social-media-business-models/#0hjNZcku98qD

http://www.brainyquote.com/quotes/quotes/m/mitchlasky541086.html

 

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One thought on “Freemium is latin for ‘not really’

  1. Hi on-screen marketing, I really enjoyed reading your post! Well Done!

    I didn’t know there was a word to describe what all these companies do but the concept of “Freemium” you mentioned is a really interesting business model and marketing strategy.

    I think the “Freemium” model that Spotify and WordPress use are very effective, the whole concept of being free at first place is such a good way at getting people to test the product and experience the benefits, and then this will make conversion from free-using to the premium side which could really generate stable revenues for companies. As a consumer, I am more reluctant to pay for something without trying, and I more prefer the “Freemium” model.

    I have another example to share with you which is the Dropbox “Freemium”example, it offers people with free 2Gb entry cloud storage to attract more consumers to try their service, however this amount of storage is not enough for most of the users, people then have options to upgrade their plan by paying extra $13 per month for 1TB, and this will create real revenues to the company.

    There is no doubt that “Freemium” is an effective model to reach customers, but the drawback is some of the consumer may get away with using the free product, they’ll never need to upgrade or pay, which will never contribute revenue to the company, therefore this “Freemium” strategy may be not sustainable in some points. Do you think “Freemium” is a sustainable strategy? if not, what we can do to make it be sustainable for the company in the long term?

    Like

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