Freemium models

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An overview of var. freemium models, marketing strategy and possible results

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Freemium models

  1. 1. Freemium models an overview
  2. 2. What is Freemium• Time limited• Feature limited• Capacity limited• Seat/Platform limited• Group limited• Effort limited
  3. 3. What works?survivor-ship biasCurrently researchers and analysts look at survivors, look at key observable characteristics and attribute their success to these.
  4. 4. When to use Freemium• An effective distribution channel doesn’t exist• Competition is driving up customer acquisition costs• Variable cost is low
  5. 5. Marketing• Make web discovery easy• SEO – not suitable for product that people didn’t know they needed until they tried it “search is great for harvesting demand, not creating it”• 90% of people are finding apps via their phones – consider mobile search• Rewards and Incentives programs for new user referrals
  6. 6. Marketing Cost• marketing cost is the free users – people who go away once they have to pay• Free users are assets, if you can control the cost and focus on the right metrics.* They may refer paying users** Example Wordpress: 250M monthly visitors across 100M blogs. But the key metrics are the ones that drive activity and consequently revenue: 400,000 daily posts and 200,000 paying bloggers.
  7. 7. Pricing managing customer perception• It is not free – loss aversion• Avoid $0 reference price (airline study) price level 2 – expensive decoy price level 1 – real offer
  8. 8. Pricing models• Free to start – Possibly ad-supported to generate revenue – Full version or “lite” version• Tier-based pricing – user-tiers – usage-tiers• a-la carte pricing
  9. 9. Pricing Levels Mobile appsOver 54% of mobile apps currently on the market are not free*• Free about 45%• between free and $0.99 approx. 22%• between $1 and $50 about 32.6%• $50 and above are about 0.3% of mobile apps* Survey by Quixey - a functional search engine for apps
  10. 10. Pricing user conversion• Generally 1-4%• The conversion from free to paid versions are neither predictable nor reproducible.Reference from Evernote: 0.5% of people who sign up in a given month go premium, but 2% of people who signed up a year ago are now paying• Paid users’ demographics will differ than the customer base as a whole.
  11. 11. ConclusionFreemium can work for business with: – a great long-term retention rate – a product that increases in value over time – low variable costs

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