Freemium is a form of business you have definitely encountered in the past decade. In fact, it’s rare to find a digital product that doesn’t rely on this model. When operating under a freemium model, businesses provide their digital products or services for free in order to ensure future purchases.
To put it simply, the consumer receives the basic level of service a business has in its portfolio at no cost to the user.
But sooner rather than later, they will be tempted to pay for a more advanced service, knowing that it comes with extra perks, add-ons, and an improved user experience. And that’s exactly what any business that relies on a freemium model wants!
Understanding the Freemium Business Model
The main idea behind freemium is investing in customer acquisition in a way that makes customers excited to purchase add-ons. Basically, businesses invest in loyalty they know they can achieve. The confidence comes from the fact that they can make people want more.
To achieve this, users receive free access to something they want or need. Once the users become accustomed to the product, they will be more tempted to pay for an upgrade or extra perks.
In many cases, online businesses embrace this tactic, especially in their early days, because it is a great way to make themselves known. While not all freemiums are the same, all of them have quite a few things in common:
First Impressions Matter
In order to make users stick around, businesses have to make a good impression from the get-go. First impressions are just as important in business as they are in someone’s personal life. In fact, they can be more important since brand perception can determine how people engage with a business.
This translates to offering good value for freemiums. If they don’t, people won’t trust the product and will not pay for access to additional resources or tools; this is why the free version always has to solve a problem, cover a need, or provide real value.
Trust
When people rely on a business’ product, they gain trust in said business. This easily translates to loyalty, and eventually, customers won’t hesitate to upgrade their membership or make purchases that genuinely make their work or life easier.
Valuable Products & Services
Without value, freemiums wouldn’t work; when the model works, it is because it really provides something users love, want, or need. People actually have to enjoy a digital product or service to continue to use it.
After all, the online world is very competitive, and if a business cannot provide good products, people will eventually leave. If they are happy with the product and safe with the company, customers become loyal.
Data Protection & Safety
Speaking of safety, most people do at least basic research regarding a company’s policies when deciding on a business or digital product.
So, ensuring the security of customers is the least a business can do. But even when people entrust businesses without looking into their encryption technology or policies, when the trust is broken, there is no coming back.
Communication
Customers want to be able to contact a business to fix problems quickly. It’s a business’s job to ensure that they are open to communicating with their customers. Transparency and professionalism are always appreciated; nevertheless, it is not hard to overdo it and communicate too much.
Sending customers too many emails, forcing push notifications, and having an excessive number of pop-ups can deter someone from a business.
Finding the right balance is key to building trust and gaining loyalty and appreciation.
Companies & Industries That Employ Freemium As Their Business Model
It might not be immediately obvious how many online businesses have a freemium business model, but there are many!
Industries Where Freemiums Are the Norm
Let’s take, for example, the music industry. Think about how the world of music has changed throughout the years and how the need for more, better, and faster truly transformed the industry. Most music streaming services utilize freemiums.
Spotify is probably the best example, but it is definitely not the only one. Anyone can use Spotify free of charge, but if users want an ad-free listening experience, the ability to search for songs, and listen to them on repeat, they have to upgrade.
The same thing goes for the world of gambling. If you’re not familiar with online gambling, this may come as a surprise to you.
But, if you know the iGaming world, you probably noticed the no deposit bonus many casinos offer as an incentive for people to play. It might be surprising that a casino allows gamblers to gamble without money, but it happens more and more often. And people can actually withdraw their wins.
Oftentimes, there is a cashout limit, but at the end of the day, a win is a win, especially when the customer doesn’t have to take a risk. Of course, once they trust an online casino, gamblers will eventually use their own money, which is, of course, the goal from the beginning. But, when employing freemiums, casinos also make people more engaged with their brand.
Companies You Know that Operate with a Freemium Model
Numerous other businesses in the digital space use freemiums to encourage people to join a membership.
You are probably familiar with Mailchimp, WordPress, and Duolingo. All of them are very successful and continue to gain customers because they allow people to use their service for free and upgrade whenever they want.
The Difference Between Freemium and Free Trials
The main difference between the two is that there is no timeframe within which a customer can explore or enjoy a product with a freemium. Free trials have time limitations.
Furthermore, with freemium, people don’t have to provide bank details or credit card information when using a product.
They won’t be billed for anything unless they make a conscious decision to purchase add-ons, which makes users more likely to try a new product. On the other hand, free trials require these details and will bill clients once the trial expires, even if they didn’t get the chance to test the digital product.
Advantages and Disadvantages of Freemiums
Freemium is definitely a great option for online businesses in their opening stage or for businesses that want to increase their number of users. However, nothing is perfect, so this business model has its advantages and disadvantages as well.
Advantages:
- Fast and affordable user acquisition.
- Companies can make revenue from other sources, such as ads, so they don’t have to rely on paid memberships.
- Brand recognition.
- Access to valuable data for free instead of paying for market research.
Disadvantages
- Some free users never pay for upgrades, especially when they have access to everything they need on the free version.
- Users can switch to a competitor if the upgrades they pay for are not up to their standards.
Final Thoughts
Freemium is a very successful business model that relies on the oldest trick in the marketing book – a great hook.
Once a business has the hook, the rest of the work is easier than it would’ve been for a different business model. However, this doesn’t mean a business can skip research and strategy and go straight to launching a product.
Lastly, making sure customers are happy is what makes this business model beneficial for both the customer and the business. Therefore, value should always come first.
