Freemium is the Future of Business
Freemium means offering a basic digital product / service for free while offering a premium product/service for some monetary amount.
By Ken Morico updated With Coronavirus and the economic damage it’s caused very severe, people are going to be cautious with how they spend their money. Old ways of revenue generation won’t work as well. With the advent of the Internet, information is ubiquitous and the available workforce is infinite and global. Competition is extreme, and so are your competitors. Customers will need absolute certainty that what they purchase with their money will offer value to them. So, what is a viable solution to grow a business in 2020 where uncertainty is rampant and household budgets are tight? Enter freemium.
Lessons were learned during the dot com bust of 2000. You don’t sell things for less than they cost and you don’t give things away for free. Twenty years later, we’ve learned quite a bit. Monetizing any content on the Web has been a challenge. A small tweak to the dot com business model and we get “freemium.”
Freemium means offering a basic digital product / service for free while offering a premium product/service for some monetary amount.
Freemium can apply to all sorts of products: information, software, and even perfume. Offer 80% of the functionality of a service for free, and make users pay the rest of the 20%. I like freemium services that let users grow into a premium or business version of a product. For example, Mail Chimp lets you email 2,000 people on your list for free. Above that, and you pay — as you should… you’ve probably grown into a real business with real revenues. Social media tools like Buffer offer free social posting, but with only a few social accounts. If you need more accounts, you’ll need to pay. If you need advanced scheduling, you’ll need to pay. And pay you should if it saves you time, and that time saves you money. When it comes time to pay for a premium version of a freemium product, you’ll immediately recognize the value.
Chris Anderson wrote a lauded and criticized book on the subject and the accompanying economic model called Free: The Future of a Radical Price. Asking people to pay for anything online can seem very challenging. Web surfers are used to getting things for free. Web surfers think advertising should pay for content. Most Web sites / blogs / podcasts simply don’t have a large enough audience to monetize using traditional advertising. Even if they did, it won’t solve the problem of overhead costs – just look at online newspapers. Fred Wilson, New York Venture Capitalist, disagrees somewhat:
Lambasting file sharers and entrepreneurs who rightly recognize that free is the right way to build market share on the Internet might be fun and make certain people feel good. But it’s ignorance of a fundamental fact. And that fact is that free, ad supported media works best on the Internet. We have seen it again and again. I’m not going to even give examples. Once you have built that audience, you can deliver upsells via freemium models, you can monetize it via advertising and you can branch out into other services which are easier to monetize.
source: Fred Wilson, Venture Capitalist - avc.com
There is a caveat worth mentioning when it comes to podcasting and the freemium model, however. The freemium economic model based on digital distribution relies on distribution costs that amount to near zero dollars. For normal Web content like text and images, this is true. But not for popular podcasts. Podcasts need bandwidth, and bandwidth costs money. This explains YouTube’s popularity – and its early monetary losses. So how can a small Web site / blog / podcast make money using the dichotomy of freemium?
Free: The Future of a Radical Price
At the Revenue Bootcamp Conference in Mountain View, Calif., Chris Anderson, author of “Free: The Future of a Radical Price,” discusses how different companies use the free-to-premium, or freemium model, to not only make money, but often keep customers at a higher rate than fully-paid services. There are many economies–ones of status, time, information and more–and the trick is to get people to trade their money for one of them.
You need to give people what they want. They want free. To put it in perspective, you need to be an online drug dealer. Give them a free sample, get them hooked, and then once they are hooked they will realize that they can’t live without your product or service. Then they will pay. This only works however, when you have something unique to offer online. In real life, you get drugs from your local drug dealer. Online, you can get drug dealers all over the world in an instant using Google. So, your product needs to unique and focused.
For example, I started The Morico Show (Podcast) because there weren’t any good Web sites that covered the topic of podcasting and audience building strategies. With my Web and journalism background, I thought I would be well suited to fill this online void. Not only that, but podcasting is a topic people really love and are passionate about. Online, you need to fill voids with your product or service. You need to build an audience. Having blogged for a few years, I can say that you can get a lot of traffic with random keywords in your blogs, but that traffic bounces once they get their “quick fix.” When you build an audience and fill a niche, users don’t bounce. Good drugs make sure of that.
Podcast Promo Codes and Freemium
Here’s a podcast episode where I discuss promo codes and freemium:
Another Freemium Approach: Free with a Service Model
Another option for freemium is offer a totally free product or content, with a paid service option. Red Hat Linux does this by offering a free Linux server product with paid service. I offer free content on my blog and offer paid consulting services to those who need it. Popular collaboration tools like Skype and Zoom offer an easy way to provide services remotely, while free, open-source e-commerce solutions like WordPress w/Woocommerce make setting up a shop relatively easy.
The Greatest Time – Covid19
I think we are the greatest time of business during Covid19 because assets and business services are not inflated anymore and we have the full power of advanced Internet tools. Make a freemium product. Be premium.