The Freemium Model of Web 2.0
SUMMARYMost people say there is nothing as free lunch. But the Internet seriously countered that phrase when it gave us minimal cost to online access to information since the early days of the Web. These days free services like e-mail, news feeds and instant messaging has become more of a requirement that a need. Nowadays, the wave of Web 2.0 companies (like Flickr, YouTube, Skype) allow us to freely upload photos, watch videos, make phone calls, get access to online courses or even saves us software licensing costs in preference for free software productivity tools. The business model of most of these freemium services are usually accompanied by advertising and users have the option to pay subscription fees if they want to upgrade to premium services for advanced features like greater storage space. Several tech start-ups have been the target of acquisitions in recent years by Web giants, once the service reach critical mass that promises huge advertising opportunities.
THE PLAY
As people use the Internet for more and more free services and solutions, the Web browser has now become a central point of conducting most of our daily online activities and has potentially replaced most of our desktop applications. Users can now watch TV on Joost, store addresses/contacts on Plaxo, find free stuff on Craiglist, socialize on Facebook, make free calls using Skype or do financial budgeting on Mint. Wikipedia defines the freemium business model as one that works by offering basic services for free, while charging a premium for advanced/special features. The strategies for most Web 2.0 services are focused on quick customer adoption as to gain a large base of loyal users. These free services are often accompanied by advertising in various formats be in text links/keywords, banner ads, video ads etc.
The loss leader (freemium) model of allowing marketers to make one product/service for free as to drive sales to other offerings has been around for some time and the successful implementation the strategy requires that marketers reduce any stumbling blocks of product adoption be it downloads, forced registration, ease of use etc. Customers expect the service to be free and charging later on would only alienate customers accustomed to using the service for free. Knowing the upselling plan from the beginning, offering unique services and identifying a range of revenue sources (premium services) will help to cover up the cost of the free service.
The future of free services will particularly be interesting as open source software developers’ produces free product that supports the community and not profits for businesses.
Resources: BusinessWeek, Wall Street Journal
Bob Rattivarakorn
Trends Research Analyst
RarePlay
