Freemium, a business model for P2P
(This is part two, for a basic description of freemium, see part 1)
Freemium is not a magic ward that will work for every company or organization. For some companies, it may not be a good idea to employ it at all. Nevertheless, several companies across various sectors could benefit from exploring this model.
Who should use freemium – 4 characteristics of selection
I order to help companies relate to the model, I have isolated 4 characteristics of successful freemium based companies.
1 A quality free product that people want!
For the freemium model to work, you need a lot of people using you free product. The easiest way to do this is to have a great product that people can’t believe is free, while being something that they want to use.
2 The product that people want should be non scares (digitally duplicable).
In order for the freemium model to work, you need the free product to be widely used. The reason it can make sense to give away so many free products, is that they don’t cost a lot to produce.
3 Large reach
In most cases the conversion rate from free to premium products is under 10% – this means that a certain number of free users for the model to work. This obviously favors companies that have a large possible reach. A book for smurf enthusiasts in Gaelic probably isn’t a good start for a freemium model.
4 Premium or complimentary products
Since the income comes from complimentary products, you should have or be able to create complimentary products. With a little imagination, this can be done for most companies.
For more about the 4 characteristics, see my freemium blog post about it.
How to implement freemium, 2 conditions for success
Besides the 4 characteristics of selection, I have isolated the ways other companies have helped their freemium become a success.
1 Spreading the word
The success of freemium is dependent on having a free product that reaches a certain level of popularity, thus facilitating the sale of complimentary products.
Besides having a quality product that people want, you need to make people aware of it.
Since free freemium products are digital, the perfect place to do this is online. A perfect way of doing this is through social media.
2 Adapting the business model
After having created the increased supply of the free product, there will be a demand for complimentary products. If you don’t have the complimentary products, the model will fail.
For more about the 4 characteristics, see my freemium blog post about it
Learning more
If you want to find out more about freemium, you can check out my blog freemium. Here I will be posting information, examples and tools about 3 times a week.
For more information about the economy of free, check out Chris Anderson.
For an academic explanation of the economic reasoning, read Chapter 2 of Yochai Benklers “Wealth Of Networks” especially chapter 2 – Some Basic Economics of Information Production and Innovation. Here he lays out the basic economic premise behind freemium.
For excellent videos on the future of open in media, watch Gerd Leonhard.