The Freemium business model

The Freemium business model works for Spotify
The Freemium business model works for Spotify

This post is the second of a multi-part article describing methods to monetise large digital audiences. The freemium model is one of the most modern monetisation methods in the series.

The concept of freemium is to offer a free service, and if users want more content or functionality, they must buy a subscription.

One of the most common freemium products is the music service, Spotify. Users can download Spotify and immediately listen to music. If users want to be able to listen to the music when an Internet connection is unavailable, or they want to listen to ad-free music, they need to pay a monthly subscription.

Freemium is not a limited trial, such as read a specified number of web pages before buying a subscription. Freemium offers a model to quickly expand an audience, with the potential of generating revenue while that audience is increasing.

Freemium doesn’t require the user to enter the credit card to access free content or services. Users only need to enter payment information once they decide to upgrade.

Calculating the level at which users must subscribe for more services requires trial and error. For instance, until recently Spotify’s model was that users could listen to music, with adverts, on a computer, and required a subscription to listen to music on a smartphone or to remove the ads. Spotify changed the subscription ‘level’ to provide the smartphone service for free, presumably to increase the audience service more quickly.

The future

We will begin to see a number of industries outside of content publishing adopt a freemium model because of the ability to build an audience and quickly monetise.

The freemium model is simple for users to understand, and if modified infrequently, it enables content owners to change the subscription level.

It can also provide a hybrid model with advertising (for non-paying customers) and other methods.

 

For other monetisation methods, view the complete list.

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