I thought you guys have found a new element called 'Freemium'. It sounds like a heavy metal though. If I can paraphrase the idea behind freemium is like  this: build for free and they will come in their millions. Once you reach your 'millions' target uniques, then proviude an upgraded version of the service that requires subscription. Even if 1% of those several millions uniques visitors ended up subscribing, 1% of a large number is still a large number.

Imagine if Facebook were to upgrade to a paid subscription version, I will definitely settle for  subscription rate of just 1%!

Nasimon:

I suppose that's possible, yes, and at that point your product gets commoditized and it becomes very difficult for anyone to make money, regardless of the model.

But it doesn't have to be that way because there are usually ways to differentiate on service/features and so forth.

And it doesn't have to be just software as I pointed out. It could be content or just about anything you give away a free part to get people to pay.

But your point is taken and there is no perfect model, but this is one that can work for some vendors in some industries.

Thanks for your comment.

Ron

Hi Steve:

I hate to burst your bubble here, but these aren't actually examples of the freemium model.

Giving away something in exchange for something else is not in and of itself "freemium."

If the gas station gave away one gallon or less free with the hope you would eventually buy the gas, that's freemium.

If the tire center offered a free tire-related service such as a tire safety check with the hope that some percentage of takers would become paying customers, that's freemium.

Just because you offer something for free doesn't make it freemium. 

Thanks for your comment.

Ron

Freemium makes sense in the cases you illustrate. However, when there are no barriers to entry in your industry and product can be offered by other competitors, the ocean gets red. Every competitor tries to make its free version more lucrative in order to get the scale to its user base. Over time free version gets richer & richer in value, leaving little differentiation with the premium version. So customers then have no incentive to upgrade to the premium. Because if you are not providing a rich version that is free, competition is!

Good illustration Michael - the free WiFi expectation. There's a gas station nearby that BOASTS IN BIG BOLD LETTERS -- FREE WIFI!!! I mean, do I really want or even expect that at a gas station? Yet this is a freemium they are (obviously) proud to boast.

Another interesting freemium from a local vendor -- the local auto tire shop that "prides itself on our fast service" has a "free movie viewing library for your convenience!" At first I thought - how cool, then thought "just how long am I going to be in the waiting room?" followed quickly by "Geez, I gotta get here first to avoid being subjected to an Adam Sandler flick"

Talk about BEWARE

Ramon:

You had me until you mentioned Microsoft, which never gave away DOS so far as I know. We might not have bought DOS off the shelf (although some people did), but the PC vendor paid for it, and you paid for the license when you bought a PC, trust me on this.

The other misconception you're providing here with this metaphor is that it's strictly for new players. It's not. It can work for many different types of companies.

The Financial Times of London example is a case in point. It is by no means a new comer. It is an old established company trying to find a way to survive in a changing and shifting and increasingly digital world.

By giving away some content, they hope at least some people will be willing to pay, and you can be sure there are plenty of financial services companies and analysts who need the information offered by a a company like FT who will pay.

So it's a good way for an up and comer to get in the game, but it's also a way for established company with a shifting business model to stay in the game.

Thanks for the conversation,

Ron

Thanks Ron. I don't suggest that anyone is or should trick anyone. What I do say is that Freemium is just a way of MANIPULATING, i.e., attracting, conveying, bringing in, etc. someone else into your court. And I agree with your premise: FREEMIUM CAN BE A VERY WISE BUSINESS MODEL INDEED.

In my example, a player (a small dog) obviously outdone in comparison to the panther simply resorted to inventiveness and daring courage and self control in order to outmaneuver the superior one. And it can be done.

To provide our cherished products or services for free may simply seem irrational. But what you propose by your proposal of Freemium is nothing but a clever business move designed to insert that same product or service with the best possible alternative, by providing it free. Isn't that the way an obscure company by the name of Microsoft got into the DOS (remember that?) business? Does anyone paid for DOS in any store for version x.whatever? No, It came "FREE" inside the computer. And the "updates were also "FREE" to a certain extent. Then came the dagger, Windows, and Microsoft managed to convince US, MEANING YOU AND ME, Regrettably, THAT WE ACTUALLY NEEDED IT. AND THEN, WE PAID. The panther in that era, was IBM, Wang, and then some. Some defunct or famished panthers as we all know. The small dog was Microsoft, something so small and insignificant that it "came inside" the real business, the computer hardware, and it came for free. I rest my case, Ron... in fact... your case...

Freemium has been the business model concealed in this technology era. And you have been very clever as to bring it to the table for discussion. For that, Ron, thanks. And please, continue to provide us with ways of directing our sight to the obvious, so obvious that we actually may never see it. Clever Ron, very clever...

Hi Michael:

There is a big difference between a free service like free WiFi or even a free service like GMail. There is never a point where these services cross over to pay, so the Freemium model is really not applicable in these cases.

What's more in the case of this article, it's talking about a service that's not even real.

Freemium vendors are offering a legitimate service for free, then providing additional features for a price.

Thanks for your comment.

Ron

Steve,

In a software model, the low-end free version tends to work well for small businesses, but larger businesses might need the extra security, additional storage, higher end features and so forth that come with the pay version.

It really depends on your needs. I like the Dropbox model, which gives you 20 GB of free storage before you have to pay.

I might consider going with the pay version, however to have a cloud storage version of my digital pictures and music, which would take up considerably more than 20 GB.

Thanks for your comment.

Ron

Marjan:

I think you concentrated on that point a bit too much. It can work for many different business types and how many users end up supporting the free users really depends on the individual business.

It is a hard concept to get your arms around, but it can work quite well for content-centric businesses and software vendors.

Thanks for your comment.

Ron