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Freemium 201


Why do free products often fly underneath the radar? Graphical explanation + 13 differentiation strategies to monetize free products.

Why do free products often fly underneath the radar? Graphical explanation + 13 differentiation strategies to monetize free products.

Published in Business , Technology , Design
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  • 1. Practical considerations 1
  • 2. Freemium 201 Outline Freemium as a multi-sided market (MSM) Why a zero price can create new markets, yet be noticed when it’s too late 13 techniques to turn free users into paying customers 2
  • 3. Multi-sided market (MSM) Conventional definitions: platforms  A platform deals with different customer groups, statically established  One group is generally subsidized with goal to maximize total revenues and profits  Definition: “Markets in which one or several platforms enable interactions between end-users, and try to get the two (or multiple) sides “on board” by appropriately charging each side. That is, platforms court each side while attempting to make, or at least not lose, money overall”, Rochet Tirole 2004 Freemium  Deals with same customer group (free and paid); not necessarily a multi-sided platform or market  However: in many cases, Freemium has similar properties as MSM 3
  • 4. Freemium as MSM Different sub-groups of customers: free and paid users  Each sub-group has unique needs, can be segmented  Each sub-group values the presence of the other (hence, network effects) Central difference with platform model: users convert from one side to the other 4
  • 5. Freemium: two transactions Transaction T1 (side A)  Seller delivers free product or service  Buyer pays with mind share (currency) Transaction T2 (side B)  Seller sells commercial product or service  Buyer pays with money (currency)  T2 generally happens post T1, and as a result of it 5
  • 6. Freemium: two transactions Side A Side B Mind share $ User Provider Buyer Free goods Premium goods Conversion from A to B 6
  • 7. What’s a market?  Product 1: 90% market share, priced at a1>0  Product 2: 10% market share, priced at a2>0  What’s the market size?  Where is growth? 7
  • 8. What’s a market?  Product 3 appears, priced at a3=0  Market size in revenue is UNCHANGED, free contender often IGNORED  Market size in units (usage) DOUBLES  New segment created on one side, new commercial business on the other side of MSM 8
  • 9. Freemium: 13 techniques to turnusers into revenues1. Free core 8. Stable version2. Premium core 9. Immediate data3. Related, same buyer 10. Deferred data4. Related, diff. buyer 11. Free use5. Stable trial 12. Embedded6. Beta 13. Reverse Embedded7. Enthusiast 9
  • 10. Freemium: 13 techniques to turnusers into revenues FEATURE TIME DIFFERENTIATION DIFFERENTIATION Related add-ons (B), Beta Same buyer Stable version (A) version trial (A) Enthusiast version (A) Free Prem. Core Core Stable version (B) (A) (B) Immediate Deferred Related add-ons (B), data release data release Different buyer (B) (A) DIFFERENTIATION BY EMBEDDING Free use Embedded Reverse case (A) use (B) Embedded (B) 10
  • 11. info@nicolaspujol.com 11