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.

The post Freemium, part 2 appeared first on P2P Foundation.

The model
Free + Premium = Freemium

Slideshare presentation meet Freemium

The term freemium was coined to describe a business model where you give away a free service and sell premium products. A prime example of this is Skype. They give away a free VoIP client and sell complimentary products such as Skype out.

Freemium outside IT
The freemium model is common place within the internet and IT industries.
Of late, it is also featuring in other businesses, such as in the publishing and music businesses. A good example of this is Nine Inch Nails. This company released the main part of their latest album for free. Fans could then buy several different premium products, such as a deluxe edition for $300 or 27 additional tracks for $5.

Not Gillette
Now, freemium is not in practice when you subsidise one product with another. Like cell phone companies that give you a phone for $1 and let you pay for it through the subscription.
Neither is it about giving someone a glimpse of your product, like giving a free sample at the super market or giving away one chapter for free download.

Freemium is characterised by giving away a quality product that people can really use, in and of itself. Like the VoIP client from Skype.
This is a valuable program that has over 1 billion downloads. Most of the users only use the free program and that is OK, because there are so many of them.

How does this make sense?
The reason this hummingbird can fly is digital production.
The cost of digital production is falling exponentially towards zero, and the marginal cost for digitally produced products is very low. The cost for Skype to provide a user with free phone calls is very low. The cost for Nine inch nails to copy and distribute the mp3 files is very low.

This close to free, quality product allows companies to attract a large group of users. As long as a certain percentage of these buy a premium product, this model can create a profit that is greater than from a traditional distribution.

The idealistic side of Freemium
Besides working for companies the freemium model is also what makes the open source software industry work. They give away work on programs that are free and then make money on premium products such as support.
Using freemium they release a lot of valuable products for free. These can also be used by those who cannot afford it otherwise.
This is not just true for software, but anything that can be duplicated digitally. It could be anything from construction manuals on open hardware to open knowledge.

The possibilities are many. If we can show people that they can be profitable, more will choose the open alternative.

See more about freemium on my blog Freemium

Tomorrow I will do a follow-up post, covering more aspects of freemium
–    Who should use freemium
–    How do you successfully implement it
–    Places to learn more

The post Freemium, a business model for P2P appeared first on P2P Foundation.