1 | P a g e
Understanding Freemium Business Model
Senior Year B.Tech Project Report
Author: Tarkeshwar Singh
Department of...
2 | P a g e
Section 1
Table of Contents
Acknowledgement......................................................................
3 | P a g e
Abstract
This paper serves as a Bachelor of Technology Project Report for the Senior Year project of Mr.
Tarke...
4 | P a g e
The subsequent part of the paper has been divided into five sections: Section II contains the literature
revie...
5 | P a g e
The division between the premium and the free product in the Freemium Model can be based on
several different ...
6 | P a g e
i. Negligible Marginal Costs: As technology advanced, the marginal cost of developing and
maintaining a softwa...
7 | P a g e
Growth of App Stores:
The total number of apps available for download on Apple App Store and Google play is
70...
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conscious decision making of buying/adopting the product is changed. Especially in the
mobile and PC world thi...
9 | P a g e
in relative and absolute terms.[32]
In App purchases can be understood as buying access to
more features of a ...
10 | P a g e
v. Change in delivered value with every additional user: Freemium model is most effective
when there is a val...
11 | P a g e
Platform Model3
. To make the products look similar to each other, the two platform model was made
to appear ...
12 | P a g e
Rs 200 a year for the full package
Two Platform Model:
Office Tools Software
Word processor, spreadsheet , pr...
13 | P a g e
ii. Popularity of each form for each product category:
The average of the ratings collected for each of the t...
14 | P a g e
first anomaly can be credited to the fact that it was the first question users faced during the
survey which ...
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ii. Advertisements sold alongside products do not act as a potential adoption barrier for users.
A major poin...
16 | P a g e
Finally, the hypothesis developed from the experiments on comparing Freemium with Two Platform
model form an ...
17 | P a g e
based freemium, they are an altogether different area of research as these purchases are not
just mere up-gra...
18 | P a g e
[21] Z. Lutz, ‘Google Play hits 25 billion app downloads, holds celebratory yard sale with $0.25 games’,
Sour...
Section 2
Literature Review
Business Models around ‘Free’ in the Web Space
Author: Tarkeshwar Singh
Advisor: Prof. Krishna...
Table of Contents
Section 2 .................................................................................................
1. Introduction
The rapid growth of the semiconductor industry towards the end of the 20th
century ushered in the era of t...
share of Netscape went down from 85%+ to almost zero by the end of the 20th
Century. The tough
competition from Microsoft ...
Yahoo is the leader of the display advertising with a total market share of 17%viii
. Yahoo with its mail and
messenger se...
became more popular. Further the page rank technique used by Google came up with better results. Gradually
Google became a...
Adwords and Admobi), Social Networks and smartphone operating systems. The primary source of income
for Google is advertis...
2.2.4. YouTube and the world of videos
YouTube, the world’s largest video sharing website was founded in 2005 by three for...
It attracts more than 470 million unique visitors every month which is roughly 25% of all the internet
users.
There are mo...
2.3.1. Growth of Social Networks
Social networking saw its origin with websites like Friendster and MySpace which were fou...
2.3.2. Smart Mobile Devices
The most prominent technological change of the current decade has been the growth of mobile de...
2.3.3. Growth of dedicated application stores
The growth of smart and connected mobile devices has led to the development ...
The average revenue per download (ARPD) of the top 250 apps released since January 2012 is $0.99
in the U.S. This number i...
3.3. Social Networking Era:
The last decade has seen a spurt of innovation among business models around the World Wide Web...
One of the major misconceptions regarding Freemium is confusing it with the ‘Two Platform Model’. The
‘Two Platform Model’...
4.2 Factors supporting Freemium
After having laid the basic foundation about Freemium and its different types, It becomes ...
Growth of App Stores:
The total number of apps available for download on Apple App Store and Google play is 700,000
each w...
Permanent Effects: The permanent effects refer to the long term impact of the promotions. Permanent impact
of promotions a...
There is a negative relationship between buyers’ perception of transaction value and their intentions to search.
There is ...
6. Appendix:
6.1. Advertising Trendslvii
:
Global internet advertisement spending was pegged at $80.2 billionlviii
.
Total...
Entertainment accounted for 4% of 2012 revenues, or $729 million, up from the $556 million (4% of
total) reported in HY 20...
xxvii
Source: http://www.youtube.com/yt/press/statistics.html
xxviii
Source: http://www.jeffbullas.com/2012/05/23/35-mind-...
liv
Internal Reference Price is defined as a price in buyers’ memories that serve as a basis for judging or comparing actu...
Section 3
Study on Freemium Products: Web Survey to understand User
Preferences
Created by:
Tarkeshwar Singh
Senior Underg...
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A Detailed Study on Freemium Model and understanding it using the lens of Behavioural Economucs

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A Detailed Study on Freemium Model and understanding it using the lens of Behavioural Economucs

  1. 1. 1 | P a g e Understanding Freemium Business Model Senior Year B.Tech Project Report Author: Tarkeshwar Singh Department of Electrical Engineering, IIT Gandhinagar Project Advisor: Prof. Krishna Prasad Miyapuram Department of Computer Science and Engineering, IIT Gandhinagar This document has been divided into three sections: Section 1 forms the final report for the B.Tech Project done by Mr. Tarkeshwar Singh, Final Year Undergraduate Student at IIT Gandhinagar, Section 2 consists the detailed Literature Review done regarding the project. Section 3 contains the questions asked as a part of the survey done for the project.
  2. 2. 2 | P a g e Section 1 Table of Contents Acknowledgement............................................................................................................................. 0 Abstract............................................................................................................................................. 3 I. Introduction............................................................................................................................... 3 II. Literature Review ...................................................................................................................... 4 A. Definition and Types of Freemium......................................................................................... 4 B. Factors supporting Freemium................................................................................................. 5 C. Why study Freemium Model? ................................................................................................ 6 III. Applying Behavioral Economics to understand Freemium Model........................................... 7 IV. Framework for Decision Making on Freemium Model Adoption............................................ 9 V. Comparing Freemium with Two Platform Models.................................................................... 10 A. Experiment Structure ........................................................................................................... 10 B. Analysis of Data .................................................................................................................. 12 C. Inference.............................................................................................................................. 14 VI. Conclusion........................................................................................................................... 15 VII. Future areas of research ....................................................................................................... 16 References:...................................................................................................................................... 17
  3. 3. 3 | P a g e Abstract This paper serves as a Bachelor of Technology Project Report for the Senior Year project of Mr. Tarkeshwar Singh, Final Year Student of IIT Gandhinagar, in the domain of business models around the World Wide Web. The focus of this paper has been specifically towards understanding Freemium business models. Rigorous analysis of Freemium business models has not been taken up in course of academic research till date. The aim of this paper is to evaluate Freemium business models with conventional marketing and behavioral economics knowledge. Some of the most common and mystified facts about Freemium have been explained as a part of the work being presented here. The work presented here also develops a framework for better decision making on freemium model adoption by firms. The paper further takes up the comparison of Freemium and Two platform models from the perspective of users and determines the attractiveness of each towards end users. I. Introduction With the Apple App Store crossing 40 billion downloads in January, 2013[14] it has become increasingly important to understand the business models that seem to work in this less than half a decade old industry. The number of apps on the Apple App Store and Google Play is expected to be a million each by the end of 2013[15] . Most of these applications do not have an established business model and a lot of the companies around them go bankrupt even after having a lot of users. The most common business model that these companies/products use is Freemium business model. Freemium as a business model has seen a very rapid adoption in the last few decades. It can be looked upon as the most prevalent business model among the software and mobile/web application companies. Freemium as a business model has not been studied using a traditional framework and hence is among the most misunderstood business models. There lies a high sense of obscurity about the pricing and the type of freemium to use. Similarly, there has not been any research on understanding and improving the Free-to-Premium Conversion rate for the freemium model. The aim of this paper is to study Freemium model and its different forms. The paper further tries to use conventional sales promotion concepts to better explain different facts about freemium and to suggest improvements in the model. The paper also looks into the question of whether users prefer Two Platform Business Model1 over Freemium Model for similar products. 1 Two Platform Business Model can be understood as a business model in which a product has two customers(generally Advertisers and normal users) and one of the customer types(advertiser) pays for the other(normal user). Ex. Google Search, Online News, etc.
  4. 4. 4 | P a g e The subsequent part of the paper has been divided into five sections: Section II contains the literature review for the paper and explains the basics of freemium model in detail along with establishing the importance of studying them; Section III uses traditional behavioral economics understanding to explain the observations pertaining to freemium model. It especially invokes the existing research around the concept of free and price based sales promotions; Section IV contains a theoretical decision framework for freemium model adoption by a company/product; Section V takes up the comparison between Two Platform Model and Freemium business model; Section VI contains the conclusion about freemium models drawn on the basis of the literature review and the experiment performed; Section VII contains the future areas of research that can be taken up regarding freemium model. II. Literature Review A. Definition and Types of Freemium The word ‘Freemium’ is made up of the words ‘Free’ and ‘Premium’. It represents a new kind of pricing model where a version of the product is offered for free and premium version of the same product is offered at a very high cost. The term ‘Freemium’ was coined by Fred Wilson, a Silicon Valley Venture Capitalist in a blog post. Chris Anderson, the curator of TED2 , proposes that, “At the beginning of the twenty-first century, we are inventing a new form of free, which is not a gimmick, a trick to shift money from one pocket to another, Instead, it is driven by an extraordinary new ability to lower the costs of goods and services close to zero.”[16] The 21st century has seen the marginal costs of web and software products falling so low that the many companies decided to offer the product for free. Offering the product for free leads to quick adoption by a large number of users and hence the product itself becomes a marketing tool. Some of the most common Freemium products are Skype, Gmail, Flickr, WhatsApp, etc. One of the major misconceptions regarding Freemium is confusing it with the ‘Two Platform Model’. The ‘Two Platform Model’ is majorly advertisement oriented where the product has two customers and one of the customer types pays for the other. The most common example of this business model is Google Search. Freemium on the other hand is about having some of the users pay for a premium version of the product and these users typically pay off for the rest of the users in the same customer type. However a lot of the current high tech products use both the Freemium and Two Platform Model simultaneously for the same product. 2 TED is the company that organizes and supports TED talks throughout the world.
  5. 5. 5 | P a g e The division between the premium and the free product in the Freemium Model can be based on several different factors like time, feature, customer types, etc. On the basis of the literature search done, Freemium Model can be divided primarily into five categories: i. Time Based Freemium: In this form of Freemium, users are allowed to use the product free of any cost for a small initial period of time and are then asked to pay for the premium version of the product to continue using. Time based freemium is the most common and is probably the first type of freemium ever seen. The simplest manifestation of this is in the concept of having trial versions of products. However the last few years have seen a lot of products having a trial version as long as 6 months to 1 year. This amount of time is sufficient for any user to get hooked onto a product. ii. Feature based Freemium: The major advantage of the evolution of the World Wide Web is the ability to serve the long tail where every user has its own needs. Feature based freemium model has seen its rise in this ability. In feature based freemium, companies offer the product for free with few (sometimes sufficient) features to basic users and charges the users if they need advance features. One of the most common examples of this is Skype. The major assumption in this business model is that users once they start using the product will want the premium features as well and that the free product will create a value perception about the product. iii. Customer Type Freemium: Customer type freemium generally divides the users into two categories: basic(individual) users and enterprise users. The basic users get the product for free whereas the enterprise users pay for the product. The basic users in this model act as a channel of networking and marketing of the product. iv. Seat Limited Freemium: Seat limited freemium model limits the number of accesses each user can have. This can be understood mostly simply with the IEEE business model where institutions can buy as many number of accesses as they want. v. Bundling Oriented Freemium: In this kind of model, one of the products(mostly software) is generally sold with another kind of product for free. Sometimes one of the products is offered at a selling price lower than the cost which is then recovered by later purchases in the product. One of the most popular products which use this model is Amazon Kindle which is sold at a discount and is then compensated by the sales that occur through the device. B. Factors supporting Freemium After having laid the basic foundation about Freemium and its different types, It becomes important to study the factors that have led to the development of the Freemium Model in the past decade.
  6. 6. 6 | P a g e i. Negligible Marginal Costs: As technology advanced, the marginal cost of developing and maintaining a software product has gone down drastically. The lower costs make it ineffective to price the product at the marginal cost and this allows companies to be profitable with only 2-3% of users paying for the product. ii. Low Bandwidth and Storage Cost: The cost of bandwidth usage has decreased rapidly with the adoption of newer technologies. The storage cost has also decreased rapidly allowing the marginal costs for most software products to go down rapidly. iii. Lack of Marketing/Promotion Costs: One of the major components of cost for a software product until the last decade was the marketing cost. However the launch of Apple App Store revolutionized the way users can be reached. Users now have a known platform where they can look for different kinds of applications/tools that they need. The pricing structure of the App Store supported by growth of social media has reduced the cost of marketing to zero. iv. Growth of Smart Connected Devices: The growth of smart mobile devices with large processing power has become the backbone of the entire software industry. C. Why study Freemium Model? The final question that the literature review tries to address is: Why is there a need to Study Freemium Business Model? This question can be best answered by looking at some of the statistics related to the growth of Mobile devices and App Stores. Most of the apps developed for the mobile devices use Freemium Model and this entire industry has been growing at a very quick rate, hence it becomes important to study them to create a better understanding. Growth of Smart Mobile Devices: Smartphones shipments formed 35% of all the mobile devices shipped in the last year. Worldwide mobile broadband subscriptions have exceeded 1 billion out of a total of 2 billion broadband users worldwide[17] . Mobile data traffic has been expected to grow with a CAGR of 60% from 2011 to 2016.18] An average user uses 1-2Gb data on his mobile computers followed by around 800 Mb and 600 Mb on his Tablet and smartphone respectively.[19] Online video and web browsing together contribute the most traffic coming from the mobile devices. Together these contribute more than 50% of the entire traffic.[19] The number of mobile internet users have exceeded desktop users in both India and U.S Almost 40% of the smartphone users use their phones even before getting out of their beds.[19] The average time users spend on their smartphones has been found to be around 2.5 hours a day[20] .
  7. 7. 7 | P a g e Growth of App Stores: The total number of apps available for download on Apple App Store and Google play is 700,000 each with expected addition of 435,000 to Apple’s App Store in 2013.[21] The total no. of downloads for both the platforms collectively has exceeded 75 billion with app store contributing 40 billion while Google Play contributed another 35 billion.[22] An average iPhone user downloads more than 80 apps to add to the pre-installed 20 apps with more than 50% of these apps being absolutely free. The total market for paid smartphone apps has exceeded $8 billion. The average revenue for paid apps has been found to be around $19,560.[23] The total revenue generated from smartphone and tablet apps(including advertisements and in app purchases) has exceeded $25 billion out of which App Store contributes around 65% followed by Google Play which contributes around 27%.[24] Average price of a paid app was found to be $2.82.[24] III. Applying Behavioral Economics to understand Freemium Model Freemium as a pricing model can be looked upon as an extension of Price based Sales Promotions, the discount in this case being extended to a limit where the product becomes free. Free or Zero as a price is treated very differently than any other price in Behavioral Economics because of the kind of responses it evokes from the users. Hence to understand Freemium fully, it is important to understand the power of Free as a selling tool. However, there are several other hypotheses as well, that have been derived from traditional price based sales promotions and which can be applied to understand freemium better. Some of the most important general observations about freemium have been mentioned below and subsequently they have been explained with traditional knowledge about behavioral economics and Price based Sales Promotions: i. High Adoption Rate: All Freemium based products have seen very high number of downloads. Google Play Store and Apple App Store both have seen together more than 75 billion downloads in the last 5 years. There are currently around 1 billion active smart mobile devices in the world[25] . This means that every smart mobile device users has downloaded roughly around 80 mobile apps. This phenomenon of high adoption rate for freemium products can be best understood from the Concept of Zero Price. Renowned behavioral economist Dan Ariely in his paper ‘Zero as a special price: The true value of free products’[26] demonstrates how offering a product at a zero price can alter user buying behavior drastically. The paper rigorously proves that equal amount of discounts evoke different responses if the end result of one discount is a zero price. Whenever a user gets a product for free then the
  8. 8. 8 | P a g e conscious decision making of buying/adopting the product is changed. Especially in the mobile and PC world this becomes more prominent as there are negligible costs of adoption(generally the network bandwidth cost). This result in users downloading a free product instead of a better product charged at any other price. ii. Low Conversion Rate: Freemium model has been criticized the most for having an extremely small conversion rate to premium user. This can be explained by the following hypotheses developed from Price Promotions: a) ‘Permanent Effects of price promotions are almost negligible and they fail to bring about a change in user behavior’[27] ; b) ‘The price consumers expect to pay for a brand also decreases with an increase in the observed depth of price discounts of the brand’;[28] c) ‘There is a positive relation between advertised selling and reference price and buyers’ internal reference price.’[29] The above mentioned hypotheses clearly demonstrate that offering a discount does not lead to alterations in user behavior. Further the reference price or perceived value of the product goes down with the amount of discount offered. In case of freemium products, users expect it to be free and because of the complexity of the product there is no clear way of creating an internal reference price for a product. This explains why most freemium products cite extremely low conversion rates of 2-3%[30] . iii. High Attrition Rate: The freemium products apart from an extremely small conversion rate have a very high attrition rate. According to latest findings, more than 26% of apps downloaded are used just once.[31] This can be explained from the fact that the users have far too many alternatives for every product offered in the software world. Also most of the current products being made allow users to export their data across platforms and software tools at ease which brings down the cost of shifting to zero. Even apart from the initial drop in number of users, most of these products see high fluctuations in the userbase. This can be explained from the hypothesis that: ‘Price based promotions increase the non-loyal segments of the user base and in the long run reduce the brand loyalty and value.’[28] . iv. Falling Average Price per Paid app: One of the major disadvantages of having continuous price promotions is the reduction in the price perception of the entire product category.[29] This makes the process of offering price promotions a self-defeating exercise. This has been the exact observation in the case of freemium based products where offering a large number of products for free has led to reduction of overall price of the paid apps as well over the last few years. v. In App Purchases forming the largest chunk: One of the most positive observations made about the Freemium model in the last few years is the growing share of in app purchases both
  9. 9. 9 | P a g e in relative and absolute terms.[32] In App purchases can be understood as buying access to more features of a product once the user likes the basic version. The In App Purchases benefit from the fact that they don’t suffer from price promotions of the app as they don’t fall in the same category. Further the user develops a price perception of the product based on the features over a fairly long period of time and then decides to buy them. IV. Framework for Decision Making on Freemium Model Adoption One of the key areas of freemium model research that has been untouched is the layout of a framework that can help business decide whether freemium is the right pricing model for their product. In this section, the required necessary attributes for a product to be able to adopt Freemium Model has been laid out. It is important to note that the decision making factors laid out here form the necessary but not sufficient conditions for the success of a product using Freemium model. i. Marginal Cost of serving every free and paid user: The most important decision factor for adoption of Freemium model is the marginal cost of serving every free and paid user. If the marginal cost of serving every free user is not close to zero, then Freemium is not the right pricing model for the business. Another important factor to watch out for is the cost of serving every paid user. If the profit margin of serving every paid user is not extremely high then it will take a very large time for the company to recover the fixed costs for the product. ii. Complication and Newness of the Product: The major historical reason behind adoption of Freemium model was the complete newness of the products. Most users have never seen any product similar to the ones that were being launched and hence convincing them to pay a price for a product was very difficult. Therefore to gain adoption by a large number of users the companies decided to offer the product for free. However this resulted in very few users willing to pay for the product even after using it for a long time. Hence, while adopting a freemium model for a product a company must try to ascertain the newness of the product. If the targeted consumer is already familiar with the product category then the company might be better off using an upfront pricing scheme. iii. Market Size: Freemium Model goes with the assumption that only few of the customers will shift to being a premium user. Hence to recover the fixed costs the product must have a very large targeted customer base. iv. Marketing Tool: Offering a product for free has always been considered a marketing gimmick. In the case of Freemium Model, this may not be completely true but the offered product for free is still considered to be a marketing channel. If the company can access the market through any other channel which can lead to product adoption by a large number of users then adopting Freemium model might lead to loss of potential revenue.
  10. 10. 10 | P a g e v. Change in delivered value with every additional user: Freemium model is most effective when there is a value gain to every user with addition of next free or paid user. The value gained can be in terms of Network Effect(Skype, Facebook), Increasing Conversion Rate(Evernote), Access to enterprise customers(Gmail) and Increased sales of related products(Amazon Kindle Fire). If there is no value addition for every new free user addition then the cost of serving the free user will exceed the benefits resulting in the insolvency of the company. vi. Change in delivered value with time: Most of the successful freemium products have an increasing value for the user with time. The free users are made to convert to paid users by forcing them to add more value to the product for themselves and others. This decreases the attrition rate by creating a barrier for exit for the user. Further this leads to user increasing the internal price perception for the product and hence some of them start to shift to the paid version of the product. vii. Correlation between Cost Structure and Price Structure of the product: While fixing up on the pricing frequency for a freemium model it is important to look at the cost structure of the product. If the product has a recurring cost every fixed interval for every user, then having a fixed one time pricing for features(or premium product) will create profitability issues in the long run. V. Comparing Freemium with Two Platform Models Freemium and Two Platform Models are among the most common business models in the domain of web and mobile application products. Both the business models have their own pros and cons and there still has not been a clear winner among the two models. The parameters on the basis of which these models can be compared are Average Revenue per Download, Average Lifetime Value of a User and Average number of downloads that a product receives in each of the categories. In the scope of the research made for this paper, only the parameter about the Average number of downloads for the two models have been compared. The parameter Average Number of Downloads has been translated to mean the overall likeability of the product which implies higher the user preference for a product higher will be the number of downloads. The subsequent subsections take up in detail the structure of the experiment and the analysis of the results. A. Experiment Structure To estimate the user preference between the Two Platform Model and the Freemium Model, users were asked to rate seven different categories of products. Each of the product categories were represented in three different forms viz. Feature based Freemium, Time Based Freemium and the Two
  11. 11. 11 | P a g e Platform Model3 . To make the products look similar to each other, the two platform model was made to appear as a Freemium where apart from the products supported by advertisement there was another version of the product without advertisement which required the user to pay an upfront cost. For the feature based freemium products, the features were designed in such a way that they were sufficient for an average user. The users were presented with a total of 21 questions regarding rating a product and were asked to rate every product on a scale of 1 to 5 where 5 was the highest rating for any product. The seven different categories were: i. Office Tools ii. Dictionary iii. Online Storage iv. Email Client v. Music Player vi. Text Messaging Tool vii. Mobile Games All the three forms for every product category had identical features to ensure that the decision making only happens on the pricing model. In order to remove the price perception factor from decision making, all the products were given the same price. Each of the twenty one products was given a random fictitious name to remove the brand effects from decision making. The questions were shuffled completely for every user to remove any kind of anchoring effect. The following is a sample product description for each types: Time based Freemium: Azure Office tools Software Word processor, Spreadsheet, Presentation Tool along with ability to sync, edit and store data online for 1 phone, 1 tablet and 1 PC: Free trial for 30 days Rs 200 a year after that Feature based Freemium: Office Tools Software Word processor, spreadsheet , presentation tool along with ability to sync, edit and store data online for 1 phone, 1 tablet and 1 PC Free without the features of sync and online storage and available for only 1 device 3 The reason behind adoption of only feature and time based freemium model is because they are the only ones who target common users directly. The other three types either require enterprise users(Seat Limited and Customer Type) or there is a need to observe user behavior for a longer period of time(bundling oriented).
  12. 12. 12 | P a g e Rs 200 a year for the full package Two Platform Model: Office Tools Software Word processor, spreadsheet , presentation tool along with ability to sync, edit and store data online for 1 phone, 1 tablet and 1 PC Free with Advertisement Rs 200 a year without advertisments B. Analysis of Data The survey deployed with the above structure and questions received 45 responses. The data collected was analyzed in different ways to come up with different interpretations of it: i. Popularity of the different forms: The ratings collected for the seven different categories for each of the three different pricing forms were averaged to come up with the following responses: The most popular pricing form based on the average ratings was found to be Two Platform Model followed by Feature based Freemium and Time Based Freemium Respectively. If the Time and Feature based Freemium products are clubbed together to form one single Freemium Category then the difference between the ratings of Two Platform and Freemium Models becomes higher. 2.48 3.17 2.72 0 1 2 3 4 Time based Two Platform Model Feature Based AverageRating Average Rating of each Pricing Form Series1
  13. 13. 13 | P a g e ii. Popularity of each form for each product category: The average of the ratings collected for each of the three forms of pricing has been displayed in the table below: The general trend observable from the data is that Two Platform Model has received the highest rating followed by Feature based Freemium and Time based Freemium respectively. The data presented above has three anomalies: a) For Office Tools product category, Time based Freemium has a higher rating than Feature based; b) For Game product category, Time based Freemium has a higher rating than the Feature based Freemium; c) In the Text Message product category, Feature based Freemium and Two platform model have similar ratings. The 3.17 2.6 0 1 2 3 4 Two Platform Model Freemium Model AverageRating Average Rating of Freemium and Two Platform Model 3.1 3 2.2 2.2 2.4 2.5 2.3 2.5 3.1 2.4 2.6 2.8 2.3 3.2 3.6 3.5 4 2.6 3.2 2.9 3.1 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 Office Tools Online Storage Music Player Email Client Dictionary Game Text Message AverageRating Average Rating for Each Product TimeBased Freemium Feature Based Freemium Two Platform Model
  14. 14. 14 | P a g e first anomaly can be credited to the fact that it was the first question users faced during the survey which may have resulted in a bias of awarding higher ratings. The second anomaly can be explained with the inherent assumption that most users complete(or can complete) all stages of a game within the first 30 days. The third anomaly is present as the perceived difference for the users between the two products was insignificant. iii. Popularity of the different Categories: While designing the experiment, a predicted probable error was that some of the categories will intrinsically have lower ratings because of the users’ inherent anchoring effect with the products they use frequently. Hence it is important to look at the average ratings of each of the seven different product categories: As can be seen from the data presented above, the products display a very wide range of average ratings. Product categories like Game, Email Client and Music Player have the lowest ratings which can be explained from the fact that these products are currently available for free in the market and hence the lower ratings show the inherent bias against payment for such products. C. Inference The analysis of the data presented above results into validation of following hypothesis: i. Two platform model is more attractive to users in comparison to Freemium model The above hypothesis answers a very important question about monetization strategy for products. A completely free product shall attract more consumers and hence should be adopted by products which have a large target userbase. However, for the products that has a much smaller target userbase, instead of adopting time based freemium, feature oriented freemium should be used to gain a large amount of market share. 3.1 3.2 2.6 2.5 2.8 2.6 2.9 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Office Tools Online Storage Music Player Email Client Dictionary Game Text Message AverageRating Average Rating of Each Product Category
  15. 15. 15 | P a g e ii. Advertisements sold alongside products do not act as a potential adoption barrier for users. A major point of debate between marketers and product developers is whether users see advertisement offered along with product as a barrier to adoption for products. Even though the experiment does not establish the optimum level of advertisement for a product or the type of advertisements that go best with products without alienating users; It establishes the fact that users do not get alienated by just the notion of advertisement with a product. However, the exact level and forms of the same need to be determined by a future experiment. iii. Time based freemium products are the least attractive among the three forms presented. Users perceive time based freemium as the worst form of products; given all other features are the same. Hence a company should avoid going with a time based freemium or have a longer trial period. Another potential way of looking at this is to avoid explicitly mentioning the duration of the trial period which some existing products like WhatsApp4 do. A further area of research along this hypothesis can be focused on determining the optimum duration fo trial period different product types. iv. Users are generally unwilling to pay for the products that are traditionally sold completely free of cost. This is a continuation form the hypothesis built from research on Price Promotions which states that continuous price promotions reduce the price perception of users. The findings from this experiment support this hypothesis. Products like webmail client, games and music players are sold for free and hence they receive an inherent low rating from users. VI. Conclusion The work presented in this paper has been primarily focused on finding the answers of some of the broad questions about freemium business model. Prior to this work, Freemium Business Model had never been analyzed using the traditional behavioral economics and marketing knowledge. A lot of the work presented in this paper has been directed towards explaining and demystifying facts and statistics about freemium business model. The theoretical framework that has been developed to assist the freemium model adoption decision making is expected to have a lot of practical implications. Due to lack of time and resources, the framework could not be validated during the course of the work presented here. The practical validation of the framework shall also help in making the framework exhaustive to include all possibilities. 4 WhatsApp is one of the largest text messaging app for smartphones and is available across all popular smartphone platforms. It has more than 100 million users worldwide.
  16. 16. 16 | P a g e Finally, the hypothesis developed from the experiments on comparing Freemium with Two Platform model form an important basis for decision making among them. It is expected to have more practical impact as more and more advertisement money shifts from traditional media to internet and mobile advertisement world. VII. Future areas of research Freemium Business Models are one of the least researched business models and hence there exists a wide possibility for future research. This paper has taken up a very small subsection of the probable research that can be done in this domain. Some of the most important research topics that can be explored regarding freemium business models are: i. Sweet Spot of Price: One of the key areas of research for any product and business model is the determination of sweet spot of price. As more and more apps get launched, the fcus shall shift towards finding the sweet spot of price for the products to gain maximum conversion rates and/or user adoption ii. Improving the price perception of users: Most of the software products/mobile applications have been offered for free till now and this has brought down the overall price perception of the users. Research on improvement of the price perception will be promising and important for the growing mobile and web applications industry. iii. Factors affecting conversion rate: Conversion rate is one of the key points of worry for any startup venturing in the domain of freemium software. Most of the products have adoption rates as low as 1-2%, if this can be just increased to 4-5% then that shall bring a major change in the company’s bottom-line. iv. Handling the high attrition rate: High attrition rate has become a major problem for the software industry. The reducing barriers against migration are expected to increase the attrition rate even further. Most products currently adopt an approach of hit-and-trial to handle this problem which leads to potential revenue loss and user alienation. v. Comparison of Freemium and Upfront pricing models: A comparison between Freemium pricing model and Upfront pricing schemes has become imminent as more and more apps shift from freemium and two platform models to completely paid versions. vi. Impact of freemium as a marketing tool: Freemium has always been looked upon as a marketing tool but the effects of freemium on product marketing have never been quantified. vii. Analyzing in App purchases as a subsection of freemium: As mentioned in the literature survey, In App Purchases have become the largest revenue contributors for mobile apps in the recent years. Even though In App Purchases are generally clubbed together with Feature
  17. 17. 17 | P a g e based freemium, they are an altogether different area of research as these purchases are not just mere up-gradation of the product. References: [1] D. Kahneman, ‘Prospect Theory: An Analysis of decision under risk’; The Econometric Society, 1979. [2] D. Ariely, ‘Predictably Irrational’, Harper Collins Publishers, 2009. [3] N. Pujol, ‘Freemium: Attributes of an emerging business model’, Pujol Enterprises LLC, December 2010. [4] N. Pujol, ‘Challenges specific to Freemium and Two Sided markets’, Pujol Enterprises LLC, December 2011. [5] C. Anderson, ‘Free! Why $0.00 is the future of business’, Wired Magazine, 2008 [6] M. Butler, ‘Android: Changing the Mobile Landscape’, IEEE CS [7] J. Laugesen, Y. Yuan, ‘What factors contributed to success of Apple’s iPhone’, Ninth Global Mobility Roundtable, 2010 [8] U. Shmilovici, ‘ The Complete Guide to Freemium Business Models’, Source: http://techcrunch.com/2011/09/04/complete-guide-freemium/ [9] J. Maltz, D. Barney, ‘Should your startup go Freemium’, November 2012, Source: http://techcrunch.com/2012/11/04/should-your-startup-go-freemium/ [10] Y. Liu, P. Yuan, G. Zhou, ‘A Study of Pricing Strategy for Mobile Internet Service using Clickstream Data’, IEEE, 2010. [11] K.J Bekkelund, ‘Succeeding with Freemium’, March 2011 [12] L.Murphy, ‘The Reality of Freemium in SaaS’, 16 Ventures [13] C. Shapiroa, ‘Optimal Pricing of Experience Goods’, Bell Journal of Economics, Vol 2, No. 14, 1983 [14] Apple Inc , ‘App Store tops 40 billion downloads with almost half in 2012’, Source: http://www.apple.com/in/pr/library/2013/01/07App-Store-Tops-40-Billion-Downloads-with-Almost-Half- in-2012.html [15] J. Koetsier, ‘Google Play will hit a million apps in June (probably sooner than the iOS app store)’ Source:http://venturebeat.com/2013/01/04/google-play-will-hit-a-million-apps-in-2013-probably-sooner- than-the-ios-app-store/ [16] C. Anderson, ‘Free: The future of a radical price’, Hyperon Publishers, 2010. [17] ‘Internet Users in the world’, Source: ‘http://www.internetworldstats.com/stats.htm’ and Ericsson, ‘Traffic and Market Report Data’, November 2011 [18] Ericsson, ‘Traffic and Market Report Data’, November 2011. [19] Team NextBig What, ‘Smartphone Users In India Now Spend More Time On Content Than Voice OR SMS’, Source: http://www.nextbigwhat.com/smartphone-users-in-india-297/ [20] D. Etherington, ‘New Reports Claim The iOS App Store Will Gain 435K New Apps In 2013, But Most Apps Go Unnoticed’ , Source: www.techcrunch.com/2013/01/22/new-reports-claim-the-ios-app-store- will-gain-435k-new-apps-in-2013-but-most-apps-go-unnoticed/
  18. 18. 18 | P a g e [21] Z. Lutz, ‘Google Play hits 25 billion app downloads, holds celebratory yard sale with $0.25 games’, Source: http://www.engadget.com/2012/09/26/google-play-hits-25-billion-app-downloads/ [22] R. Empson, ‘Report: Market For Paid Apps Hits $8B In 2012, While Average Revenue Per App Drops 27%’ , Source: http://techcrunch.com/2013/01/22/report-market-for-paid-apps-hits-8b-in-2012-while- average-revenue-per-app-drops-27/ [23] N. Lomas , ‘ABI: Tablets Will Take A 35%, $8.8BN App Revenue Share This Year — Passing Smartphones By 2018’ , Source: http://techcrunch.com/2013/03/12/abi-tablets-will-take-a-35-8-8bn- app-revenue-share-this-year-passing-smartphones-by-2018/?source=email_rt_mc_body [24] R. Empson, ‘Report: Market For Paid Apps Hits $8B In 2012, While Average Revenue Per App Drops 27%’ , Source: http://techcrunch.com/2013/01/22/report-market-for-paid-apps-hits-8b-in-2012-while- average-revenue-per-app-drops-27/ [25] S. Dover, ‘Study: Number of smartphone users tops 1 billion’, CBS News, Source: http://www.cbsnews.com/8301-205_162-57534583/study-number-of-smartphone-users-tops-1-billion/ [26] K. Shampan’er and D. Ariely, ‘Zero as a special price: The true value of free products’ , MIT [27] K. Pauwels, D.M Hanssens, S. Siddharth; ‘The Long term effects of price promotion on Category Incidence, Brand Choice and Purchase Quantity’; Journal of Marketing Research, Vol. 39, Nov. 2002. [28] M.U. Kalwani, C.K Yim; ‘Consumer Price and Promotion Expectations: An experimental study’; Journal of Marketing Research, Vol. 29, Feb 1992. [29] D. Grewal, K.B Monroe, R. Krishnan; ’The effects of price comparison advertising on buyers’ perception of Acquisition Value, Transaction Value and Behavioral Intentions’, Journal of Marketing, Vol. 62, American Marketing Association, April 1998. [30] S.E Needleman, ‘When Freemium Fails’, Wall Street Journal, Source:http://online.wsj.com/article/SB10000872396390443713704577603782317318996.html [31] T.V Agten, ‘The Impact Of Price Changes’ , Distimo Publication, January 2013 [32] S. Perez, ‘In-App Purchase Revenue Hits Record High: Accounts For 76% Of U.S. iPhone App Revenue, 90% In Asian Markets’, Source: http://techcrunch.com/2013/03/28/in-app-purchase-revenue- hits-record-high-accounts-for-76-of-u-s-iphone-app-revenue-90-in-asian-markets/
  19. 19. Section 2 Literature Review Business Models around ‘Free’ in the Web Space Author: Tarkeshwar Singh Advisor: Prof. Krishna Prasad Miyapuram
  20. 20. Table of Contents Section 2 ....................................................................................................................................................... 0 1. Introduction ........................................................................................................................................... 2 2. History................................................................................................................................................... 2 2.1. The Netscape Era ........................................................................................................................... 2 2.1.1. Netscape Navigator Business Model ........................................................................................... 2 2.1.2. Yahoo and the Banner Advertising ............................................................................................. 3 2.2. The Google Era .............................................................................................................................. 4 2.2.1. Search engine war....................................................................................................................... 4 2.2.2. Webmail Client War................................................................................................................... 5 2.2.3. Google and Search oriented advertising ...................................................................................... 5 2.2.4. YouTube and the world of videos ............................................................................................... 7 2.2.5. Wikipedia and growth of Semantic Web ..................................................................................... 7 2.2.6. Growth of Open Source Software ............................................................................................... 8 2.3. Social Networking Era or the Post Facebook Era ............................................................................ 8 2.3.1. Growth of Social Networks......................................................................................................... 9 2.3.2. Smart Mobile Devices .............................................................................................................. 10 2.3.3. Growth of dedicated application stores...................................................................................... 11 3. Prevalent Business Models of each Era ................................................................................................ 12 3.1. Netscape Era: ............................................................................................................................... 12 3.2. Search Era:................................................................................................................................... 12 3.3. Social Networking Era: ................................................................................................................ 13 4. Freemium Business Model................................................................................................................... 13 4.1 Definition and Types of Freemium ............................................................................................... 13 4.2 Factors supporting Freemium ....................................................................................................... 15 4.3 Why study Freemium Model?....................................................................................................... 15 5. Traditional Price based Sales Promotions ............................................................................................. 16 6. Appendix:............................................................................................................................................ 19 6.1. Advertising Trends:.......................................................................................................................... 19
  21. 21. 1. Introduction The rapid growth of the semiconductor industry towards the end of the 20th century ushered in the era of the internet. The usage of internet became common place in most parts of the developed world by the dawn of the 21st century. The growth of internet supported by drastically reducing costs of storage and increasing bandwidth introduced a period which saw a dynamic shift in many industries. Some of the major sectors that have been permanently altered due to this revolution are Entertainment, retail, publishing and advertising. The marginal zero costs have allowed for ‘Free’ distribution of products on the internet. The initial and the simplest business model around free involved distributing information for free and earning revenue from selling simple advertisements. However, the later business models have become much more complicated especially after the ‘Dot Com’ bubble of 2000, but all of these models have been designed keeping in mind the western consumers which is a reason why most of the revenue for these firms come from the developed nations. The rapid development of BRIC nations has created a need to tailor these business models to suit the developing nations. Some of the existing firms like Alibabai and Baiduii have become immensely successful in their local markets by doing this. 2. History As is the case with every industry, the business models in the web have gradually evolved over the last 20 years since the arrival of Netscape Navigator browseriii in 1994. A historic overview of the industry shall help in understanding the way the industry has matured and thus predict the possible future models. The entire history of the internet can be divided in three eras: The Netscape or the Pre Dot Com era, the Search Engine Era and the Social Networking era. The subsequent sections talk about each of these eras and the greatest success and failures of that era along with the reasons behind them. 2.1. The Netscape Era 2.1.1. Netscape Navigator Business Model The arrival and rapid growth of Netscape had caught all the businesses by surprise including software giants like Microsoft. The first version of the browser Netscape Navigator was launched in December, 1994. The business model of Netscape though primarily similar to Microsoft in terms of earning revenue, is called Hybrid Ideal Business Modeliv . Under this business model, a firm uses existing public knowledge to develop software which it then licenses to users and enterprises. The major problem with this business model had been identified as the inability to create secrecy around the technology. Netscape however was the first effort in having an open R&D instead of the earlier in house R&D models of Microsoft. The partnerships with Sun Microsystems servers made Netscape browser a possible alternative to operating systems based model. In response to the threatv from Netscape, Microsoft started tied its browser Internet Explorer for free with its operating system. Following the launch of Internet Explorer, the browser market
  22. 22. share of Netscape went down from 85%+ to almost zero by the end of the 20th Century. The tough competition from Microsoft forced Netscape to launch an open source version of their browser called Mozilla in 1998. Netscape was later bought for $10 billion by AOL in November, 1998vi . AOL however had changed the revenue model from licensing to Two Platform Model where advertisements become the source of the revenue of the company. 2.1.2. Yahoo and the Banner Advertising Yahoo Inc(Yet Another Hierarchical Officious Oracle), was one of the earliest efforts in organizing the world wide web. As the name suggests, Yahoo was the guide to the World Wide Web, as cited by the management of the firm in the 10-Q filing in 1996 with SECvii . Yahoo initiated the first form of web based advertisement which is called ‘Banner Advertising’. Yahoo was designed as a portal from where the user can reach the different sections. A sample of a typical yahoo page has been shown below: The portal structure initiated the Two Platform Model where the advertisements formed the revenue source of the company but the users were its primary customers. Yahoo was also one of the first ones to initiate personalization in the web. By early 2000, the userbase of Yahoo had exceeded 120 million unique users per month. The portal structure allowed Yahoo to charge the advertisers on the basis of the rankings. Even today
  23. 23. Yahoo is the leader of the display advertising with a total market share of 17%viii . Yahoo with its mail and messenger service became one of the largest email web clients. Currently, the major portion of the revenue for Yahoo comes from the Display advertising which forms 43% ($2.1 bn) of the total revenue whereas the text advertising forms 37% ($1.8 bn) of the total revenue. Current Facts and trends about Yahoo and its core business: Advertising Revenuesix : The Company had total revenue of $4.9 billion in 2011 out of which Display advertisements contributed $2.1 billion, search related advertising contributed $1.8 billion and other forms of revenue contributed the rest. Mobile ad revenue for Yahoo has been estimated to be around $125 millionx . On average, Yahoo earn 2.5 cents per searchxi . Yahoo had entered into a deal with Microsoft in 2009 which made bing the search engine for Yahoo. According to this agreement Yahoo collects 88% of all the revenue collected from search related advertisements Yahoo Mail had 282 million unique usersxii in 2011. Out of these the majority of the users are from the United States. Flickr, the online pho sharing service owned by Yahoo has around 80 million usersxiii worldwide. Roughly around 4.5 million photos are uploaded daily to Flickr. Interestingly, Flickr is among the only Freemium model based product of Yahoo that has a significant no. of paid users. The paid users pay $25 a year and its estimated that Yahoo earns roughly around $50 million annuallyxiv through these subscriptions. However, Yahoo also earns through advertisements displayed on Flickr which hasn’t been taken into account here. 2.2.The Google Era The Dotcom brought to the foray the disadvantages of the Cost per thousand impressions model. Further the rapid growth in the number of websites made the portal structure used by firms like Yahoo ineffective. The user around this time wanted the ability to be able to find the exact website themselves instead of being suggested one based on genre by the Portal. This opened up the opportunity for search engines. The use of search engines had become common place in 1996 when Netscape signed a deal of $5 million each with five search firms whereby each acted as the search engine for the Netscape Navigator in rotation. These five search engines were Yahoo, Excite, Infoseek, Lycos and Magellanxv . Around 1998, Google came up with its innovative page rank based search which transformed the web search forever. Most of the old search engines were either abandoned or bought by other. 2.2.1. Search engine war One of the major happenings of the era dominated by Google, was the search engine war. Around 2000, Google started becoming the prominent search engine for the World Wide Web. Most of the prior search engines like Yahoo and MSN(of Microsoft) either brought out smaller search engines or paid them a fixed revenue. But the minimalistic nature of Google search engine in contrast to MSN and Yahoo’s portal structure
  24. 24. became more popular. Further the page rank technique used by Google came up with better results. Gradually Google became a monopoly in this domain. Yahoo abandoned its own search and adopted Bing in 2009. Microsoft stopped using third party services for its search engine MSN and rebranded it to bing. Despite, the clear monopoly of Google as a search engine, few local players like Baidu in China developed a local edge and became a market leader there. The current market share of the search engines arexvi : Google: 90.5% Yahoo(Bing): 2.9% Baidu: 0.63% Bing: 3.2% Yandex: 0.35% Others: 2.47% 2.2.2. Webmail Client War The steep drop in the data storage prices followed by a significant increase in bandwidth triggered a cut throat competition among the email service providers. The webmail war started with the launch of Gmail which offered a 1GB free usage which was in steep contrast to other providers like Yahoo Mail who charged $60 a year for 100 MBxvii . This brought a significant change in the way email service operated. Instead of premiums collected from users, most webmail providers now collect revenue through contextual ads. Few like Gmail and Yahoo Mail provided unlimited storage for free. The current email client market share worldwide isxviii : 2.2.3. Google and Search oriented advertising Google has been among the few firms which have revolutionized multiple components of the web space so effectively and have help significant market share in all of them. Google was founded in 1998 at Menlo Park in California. It was the outcome of the doctoral thesis of Larry Page and Seargey Brin at Standford University. Some of the major product categories in which Google operates are Search Engine, Web Browser, Maps and other niche search related activity, Webmail, Web and Mobile Advertisement platforms(Adsense,
  25. 25. Adwords and Admobi), Social Networks and smartphone operating systems. The primary source of income for Google is advertisements; however there are several other revenue models which the firm applies to specific products. Insights about Google: The major products of Google are: Search(Web, Image, Voice, Map, Video, Books, Patents, etc), Gmail, Google Drive, Google Chrome, Android, Google Plus, Google Play, Advertising solutions like Adsense, Adwords and AdMobi. Annual Revenue for Google for the year 2012 was $50.2 bn. Out of this, 95% of the revenue came from advertisers. 71% of the entire advertising revenue came from Google Websites whereas the rest 29% came from Google Network Member websites. Google has the largest market share in all forms of online advertising viz Display, Search and Mobile. Google owns a market share of 15.4%($2.31 bn)xix in display ads. The mobile ad run rate of Google is $8 bn in 2012xx . The rest of the advertisement revenue came from search based ads. In the search space, Google holds a monopoly with a market share of more than 90%. As of 2011, the number of Google searches made was 1.7 trillion per yearxxi . This combines specific searches in the domain of maps, images, videos, books, patents, etc. Youtube, Google’s video sharing product, has 800 million unique visitors every month. These visiors together view 4 billion hours of videos. 72 hours of youtube video are uploaded every minute. 25% of the youtube views come from mobile phones and youtube app is available on 400 million devicesxxii . The annual revenue of Youtube has been estimated at $3.6 bn for the year 2012xxiii . Gmail, google’s web mail service has a total of 425 million users as claimed by Googlexxiv . It has become the single largest webmail service provider in the world. Google Chrome is a web browser provided for free by Google. It has a market share of 33.8%xxv which is more than all of its rivals. Android, is a smartphone operating system, that was developed to rival the iOS used IPhones made by Apple. It has been activated on more than 500 million devices by September 2012. It has a market of 69.7% worldwidexxvi . The source code for Android is available under Free and Open Source Softwares. However to use the Android trademark, device manufacturers have to obtain the certification from Google. Google Play is the digital application distribution platform of Android. Google gets a share(30%) of the revenue earned by any app that is sold via the Play store. The total no. of apps on Google Play are more than 700,000 and has over a total of 25 billion downloads. Adsense and Adwords are the platforms that allow user to serve ads on Google Partner Network websites and Google websites respectively. Both of these work on a system of auctioning where users can bid for keywords. AdMobi is the platform using which users can display mobile ads.
  26. 26. 2.2.4. YouTube and the world of videos YouTube, the world’s largest video sharing website was founded in 2005 by three former PayPal employees with the features of uploading video and sharing. In October 2005, Google purchased YouTube for $1.35 billion in stock. Until 2008, the revenue from YouTube was insignificant and Google was making losses on it. But since 2010 onwards, YouTube forms a major chunk of Google’s annual revenues. The primary way of monetization for YouTube has been the advertisement embedded in the videos and the banner ads shown on the website. Another minor form of monetization for YouTube is the sponsored video content. Some of the most interesting facts and figures about YouTube arexxviixxviiixxix : YouTube receives more than 1 billion unique users every month More than 4 billion hours of video are watched every month. YouTube users upload more than 72 hours of video every minute. In 2011, YouTube has more than 1 trillion unique views. 25% of all YouTube views come from mobile devices. More than 1 billion video views a day come from mobile. YouTube has a strong partner program where users get paid via the AdSense model of Google. As of 2012, YouTube has more than 1 million unique partners. Apart from videos, YouTube has recently forayed in the domain of Movie and T.V show renting and now competes with Netflix in the movie renting business. YouTube has been estimated to have earned more than $3.6 billion in 2012 out of which the partners of YouTube earned roughly around $1.2 billion. 2.2.5. Wikipedia and growth of Semantic Web One of the most prominent trends that emerged after the Dot Com bubble was the focus on knowledge and information sharing. This was a sudden shift from the historic concept of authored content where few people generated the world’s entire information and majority of the users were passive consumers. Users were now creators of information and this has been the single largest success of the World Wide Web. This growth of semantic web had created a trend where information is expected to be free and open to all. Wikipedia is arguably the biggest success of the Semantic Web. There are several other projects that have benefited from the semantic web like Google Maps, YouTube, Quora, About.com etc where majority of the users create information for free for the benefit of fellow users. According to many agencies, more than 1% of the internet users create content actively. To put the numbers in perspective, this implies that there are more than 200 million active content creators on the internet right now. The impact of the semantic web can only be understood by looking at some statistics about its largest component Wikipediaxxx : Wikipedia has the 6th largest number of views among all the websites worldwide.
  27. 27. It attracts more than 470 million unique visitors every month which is roughly 25% of all the internet users. There are more than 77,000 active contributors on Wikipedia working on over 22 million articles in 285 languages. There are roughly around 5 million articles in English on Wikipedia Wikipedia has one of the most stringent criteria of referencing content and copyright. It also has a tiered hierarchy of content creators. 2.2.6. Growth of Open Source Software Open Source Software has been another important aspect of the Google Era. Open Source Software had its origin around the same time as the internet itself. But the real lift to open source was given by the launch of Linux operating system which was a free and open rival to the Microsoft’s operating systems. The success of Linux among the advanced computer users led to a debate between proprietary and free software. The launch of Netscape Navigator in 1997 as a free software was another big milestone in the development of open and free software. The source code of Netscape Navigator still forms the basis of popular web browser Mozilla. Apache, MySQL are some of the most popular open source softwares. The Google Era saw a large adoption of free and open source software. The open source software industry also saw a major shift where companies like RedHat used Open source as an advantage where they established themselves as the provider of stable, tested,s ervice ready versions of available open source software, particularly Linux. Google later came up with its open source mobile operating system Android. The primary advantage of keeping open source is that the R&D of the product is now done on a much larger scale and the company can make significant gains from that. However the primary risk that comes is the lack of secrecy around the product making it easier for any rival to enter into the market and launch a better product. The recent years have further seen a divide in between Open Source and Free software because of several profit making companies entering into Open Source initiatives. Free software is about having every software product for free and its developers believe in the ideals of the semantic web where information should be free to create, consume and share. Open Source on the other hand is about having the source code open to all. Several licenses like Creative Commons have been created around Open Source content and software in the recent years. 2.3. Social Networking Era or the Post Facebook Era The Post Facebook Era which is roughly the last decade has seen enormous amount of innovation in the webspace and some of the best products and the largest companies of the web space have been founded. The growth of mobile technology coupled with drastic increase in bandwidth has revolutionized several industries and the life style of people.
  28. 28. 2.3.1. Growth of Social Networks Social networking saw its origin with websites like Friendster and MySpace which were founded in 2002 and 2003. However, it became prominent with launch of Facebook and Orkut both of which were launched in 2004. This was soon followed by a plethora of social networks with both niche areas as well as general social networks. The most prominent social networks till today have been MySpace, Orkut, Facebook, Twitter, LinkedIn, and Google+. Some of the major market place impacts of the growth of social networks are: Increased data mining about the user Change in brand marketing Growth of peer reviewed systems and ratings Revival of display ads Growth of virtual gaming Professional and educational uses of social networking Use of social networks in social revolutions Group based deals However, Facebook has undoubtedly been the single most important company of this era and hence has been studied in more detail. Facebook: Facebook was founded in 2004 at Harvard University by Mark Zuckerberg and his friend Eduardo Saverin. The website initially focused only on college students. In the initial years, Facebook faced stiff competition from MySpace and Orkut but by around 2008 it had become the largest social networking website in the world. The number of active facebook users crossed 1 billion in October, 2012. Some of the interesting facts and figures about facebook arexxxi : The number of monthly and daily active users on facebook are 1.05 billion and 618 million respectively. The number of users who also use their mobile phone to access facebook are 680 million. Out of these 160 million only use their phones to access facebook. Most of these users belong to developing countries like China, Brazil, etc. The annual revenue of the company was $5.1 billion. Out of this $4.3 billion came only from advertising. The rest of the revenue comes in the form of commissions from games hosted on Facebook’s platform which are owned by companies like Zynga, Electronic Arts Inc, etc. The average revenue per user of facebook is $4.12 which is significantly low in comparison to firms like Google and Yahoo who earn $29.2 and $8 per yearxxxii . Facebook is the second largest player in display ads worldwide and has been credited with the revival of the display ads after they suffered a major decline following the growth of Google.xxxiii
  29. 29. 2.3.2. Smart Mobile Devices The most prominent technological change of the current decade has been the growth of mobile devices in the form of smart phones, Tablets and eReaders. With the number of mobile internet users surpassing desktop internet users both in developed countries like USA and a developing country like India, the scale of the impact of smartphones can be clearly understood. Smartphones: The credit for the smartphone revolution is given to Apple and it’s most popular product iPhone. iPhone revolutionized the mobile landscape forever. Major mobile phone giants like Nokia were relegated as they remained stuck with feature phones. Companies like Apple and Samsung usurped the mobile devices market. Some of the interesting facts and figures about smartphones are: Smartphones shipments formed 35% of all the mobile devices shipped in the last year. The most dominating player in mobile operating system is Andorid with 69.7% market share followed by iOS which has a market share of 20.9%xxxiv . Among device makers, Samsung and Apple together hold 52% market share in the smartphone industry.xxxv Worldwide mobile broadband subscriptions have exceeded 1 billion out of a total of 2 billion broadband users worldwidexxxvi . Mobile data traffic has been expected to grow with a CAGR of 60% from 2011 to 2016.xxxvii An average user uses 1-2Gb data on his mobile computers followed by around 800 Mb and 600 Mb on his Tablet and smartphone respectively.xxxviii Online video and web browsing together contribute the most traffic coming from the mobile devices. Together these contribute more than 50% of the entire traffic.xxxix The number of mobile internet users have exceeded desktop users in both India and U.S Almost 40% of the smartphone users use their phones even before getting out of their beds.xl The average time users spend on their smartphones has been found to be around 2.5 hours a dayxli . Tablets and E Readers: Tablets too form a significant share of 10%xlii among all the smart mobile devices that exist currently. Even though tablets currently form a minority among the connected mobile devices, the bigger size and a better form factors make them preferable by app developers and content creators to serve content. The presence of tablets and eReaders has modified the book publishing industry for forever. With majr players like Amazon in the domain, the eBooks have revolutionized the entire landscape. With its Kindle and Kindle Fire Amazon has been the market leader in eReaders. With it’s own epublishing units where it allows the authors to retain 70% of the royalty, Amazon has made it more convenient for authors to publish. The publishing industry which worked upon rejections has now changed dynamically where every author can publish now. It has also opened up several rental services where the users gets authorization to use a book only for a fixed amount of time.
  30. 30. 2.3.3. Growth of dedicated application stores The growth of smart and connected mobile devices has led to the development of a new kind of platforms to access different applications. These platform form a unique business model in themselves as they have two customers(Two platform Business Model) and they allow one of the customers(app developers) to cater the other. The opening of the application development has led to rapid growth of available mobile apps and hence the spurt in the sales of smartphones. The first successful launch of the platforms from users can download applications, music, books, movies, etc goes to Apple App Store which first originated in the form of iTunes store which was opened to sell digital music. However after the launch of iPhones, Apple decided to open up the application development for iOs to the entire world. This resulted in the launch of App Store in 2008. The success of the app store can be clearly understood from the fact that in less than 6 years the number of apps that exist on App Store has crossed 700,000 and the number of downloads have exceeded 40 billion. Following the growth of App Store several other similar platforms emerged namely Google Play(earlier known as Android Market), Windows Phone App Store for smartphones. Social networks like Facebook and Google Plus also came up with their own app centers which can be used on the respective social networking platforms. Some of the interesting statistics of this rapidly developing market are: The total number of apps available on Apple App Store and Google play are 700,000 each with expected addition of 435,000 to Apple’s App Store in 2013.xliii The total no. of downloads for both the platforms collectively has exceeded 75 billion with app store contributing 40 billion while Google Play contributed another 35 billion.xliv An average iPhone user downloads more than 80 apps to add to the pre-installed 20 apps with more than 50% of these apps being absolutely free. The total market for paid smartphone apps has exceeded $8 billion. The average revenue for paid apps has been found to be around $19,560.xlv The total revenue generated from smartphone and tablet apps(including advertisements and in app purchases) has exceeded $25 billion out of which App Store contributes around 65% followed by Google Play which contributes around 27%.xlvi Average price of a paid app was found to be $2.82.xlvii In-app purchases generated a record 76% of all revenue in the Apple App Store for iPhone in the U.S. in February 2013. At least 90% of all revenue was generated by in-app purchases in the Asian markets, which include Hong Kong, Japan, China and South Korea.xlviii Among the top ten apps for February 2013, which were released since January 2012 in the U.S. for iPhone, the ARPD(Average Revenue Per Download) ranges from $0.37 to $7.04. Of the three various business models, freemium apps generate the least amount of revenue per download with an average of $0.93 when looking at the top 250 apps in the Apple App Store in the U.S. Ninety-two freemium apps generated less than $0.99, which is the lowest price point for paid apps.
  31. 31. The average revenue per download (ARPD) of the top 250 apps released since January 2012 is $0.99 in the U.S. This number is significantly higher in Japan, where the average user spends more on apps, and the ARPD of the top 250 apps released since January 2012 is $3.12. Paid apps without in-app purchases generate $2.25 in the Apple App Store for iPhone in the U.S. Paid apps with in-app purchases generate even more per download, indicating that users are not put off by the fact that they also have to pay for additional features within the app, in addition to the one- off fee they initially paid for their app. The average revenue per download for paid apps is higher on iPad than on iPhone in the Apple App Store in the U.S.: $4.04 versus $2.25, respectively. The average iPad download generates more revenue with in-app purchases than on iPhone. Freemium apps have an ARPD of $2.26 on iPad versus $0.93 on iPhone 3. Prevalent Business Models of each Era 3.1. Netscape Era: The most common business models of the Netscape era were: i. Ecommerce: Ecommerce has one of the most simple business models in the webspace. It is identical to the grocery stores in the physical world. The only advantage is has over the grocery stores is the factor of scale and the absence of running costs in the form of the store. ii. Software as a Service: Software as a service business model had started even before the arrival of Netscape. In this business model users pay for the usage of the software after fixed intervals of time. iii. Two Platform Model(Advertising Model): The growth of Netscape followed by the plethora of web portals revolutionized the web space for forever. Two Platform model in essence is not a creation of the World Wide Web, t.v channels and newspapers have been following this model for a long time. However, the web altered the way Two Platform Model used to work. Schemes like Pay per Click, Pay per thousand Impressions, Pay per sale executed have been the greatest innovations in the world of advertising in the last few decades. All these schemes are directly measurable and hence the ROI of marketing/advertisement can be easily calculated. 3.2. Search Era: The search era or the Google Era saw modifications/arrival of two business models. i. Two Platform Model: The Two Platform Model initiated during the Netscape era saw the actual upliftment during the Google Era. Google’s products like AdSense and Ad Words completely altered the way advertisements were sold on the web. There was a sudden rapid shift from banner ads to text ads. ii. Classified Advertising model: Craig’s List that emerged during the Google Era brought the concept of Yellow Pages to the online world. It turned out that the web was more suitable for Yellow Pages than the print newspapers and this created a trend of selling classified ads on the internet.
  32. 32. 3.3. Social Networking Era: The last decade has seen a spurt of innovation among business models around the World Wide Web. Appearance of social networks like Facebook, introduction of User generated content and platforms like App Store & Google Play brought about rapid changes on the web space. Some of the most prevalent business models of this era were: i. Multi-Platform Business Models: Multi-Platform business models where a product has more than 2 customer types are of the key models of this era. Companies now had three different types of customers or more viz. Corporate Consumer, Corporate Advertiser and Normal User. All these customers derive different value from the same product and co-exist in the ecosystem. ii. Freemium Model: Freemium Model is inarguably the greatest innovation among business models of this era. Freemium as a business model is completely described in the subsequent section. iii. Bait & Hook Model: Bait & Hook Model came out of the innovation in use and throw blades by Gillette. The web space saw the revival of this model where one product was offered for free with the expectation that the user will buy another paid product along with it. The most successful product that has applied this business model is Amazon’s Kindle. Kindle is one of the few products which suffer a loss when sold to the customer but gains in the long run from sales of goods and products through it. iv. Virtual Goods Ecommerce: The growth of virtual or online gaming giants like Zynga, Rovio, EA Sports brought about a new kind of Ecommerce where users paid real money for a virtual product used in the course of the game. There has been a lot of debates among scholars around the world whether this business model is just a fad or will be long term trend in the web space. 4. Freemium Business Model 4.1Definition and Types of Freemium The word ‘Freemium’ is made up of the words ‘Free’ and ‘Premium’. It represents a new kind of pricing model where a version of the product is offered for free and premium version of the same product is offered at a very high cost. The term ‘Freemium’ was coined by Fred Wilson, a Silicon Valley Venture Capitalist in a blog post. Chris Anderson, the curator of TED1 , proposes that, “At the beginning of the twenty-first century, we are inventing a new form of free, which is not a gimmick, a trick to shift money from one pocket to another, Instead, it is driven by an extraordinary new ability to lower the costs of goods and services close to zero.” The 21st century has seen the marginal costs of web and software products falling so low that the many companies decided to offer the product for free. Offering the product for free leads to quick adoption by a large number of users and hence the product itself becomes a marketing tool. Some of the most common Freemium products are Skype, Gmail, Flickr, WhatsApp, etc. 1 TED is the company that organizes and supports TED talks throughout the world.
  33. 33. One of the major misconceptions regarding Freemium is confusing it with the ‘Two Platform Model’. The ‘Two Platform Model’ is majorly advertisement oriented where the product has two customers and one of the customer types pays for the other. The most common example of this business model is Google Search. Freemium on the other hand is about having some of the users pay for a premium version of the product and these users typically pay off for the rest of the users in the same customer type. However a lot of the current high tech products use both the Freemium and Two Platform Model simultaneously for the same product. The division between the premium and the free product in the Freemium Model can be based on several different factors like time, feature, customer types, etc. On the basis of the literature search done, Freemium Model can be divided primarily into five categories: i. Time Based Freemium: In this form of Freemium, users are allowed to use the product free of any cost for a small initial period of time and are then asked to pay for the premium version of the product to continue using. Time based freemium is the most common and is probably the first type of freemium ever seen. The simplest manifestation of this is in the concept of having trial versions of products. However the last few years have seen a lot of products having a trial version as long as 6 months to 1 year. This amount of time is sufficient for any user to get hooked onto a product. ii. Feature based Freemium: The major advantage of the evolution of the World Wide Web is the ability to serve the long tail where every user has its own needs. Feature based freemium model has seen its rise in this ability. In feature based freemium, companies offer the product for free with few (sometimes sufficient) features to basic users and charges the users if they need advance features. One of the most common examples of this is Skype. The major assumption in this business model is that users once they start using the product will want the premium features as well and that the free product will create a value perception about the product. iii. Customer Type Freemium: Customer type freemium generally divides the users into two categories: basic(individual) users and enterprise users. The basic users get the product for free whereas the enterprise users pay for the product. The basic users in this model act as a channel of networking and marketing of the product. iv. Seat Limited Freemium: Seat limited freemium model limits the number of accesses each user can have. This can be understood mostly simply with the IEEE business model where institutions can buy as many number of accesses as they want. v. Bundling Oriented Freemium: In this kind of model, one of the products(mostly software) is generally sold with another kind of product for free. Sometimes one of the products is offered at a selling price lower than the cost which is then recovered by later purchases in the product. One of the most popular products which use this model is Amazon Kindle which is sold at a discount and is then compensated by the sales that occur through the device.
  34. 34. 4.2 Factors supporting Freemium After having laid the basic foundation about Freemium and its different types, It becomes important to study the factors that have led to the development of the Freemium Model in the past decade. i. Negligible Marginal Costs: As technology advanced, the marginal cost of developing and maintaining a software product has gone down drastically. The lower costs make it ineffective to price the product at the marginal cost and this allows companies to be profitable with only 2-3% of users paying for the product. ii. Low Bandwidth and Storage Cost: The cost of bandwidth usage has decreased rapidly with the adoption of newer technologies. The storage cost has also decreased rapidly allowing the marginal costs for most software products to go down rapidly. iii. Lack of Marketing/Promotion Costs: One of the major components of cost for a software product until the last decade was the marketing cost. However the launch of Apple App Store revolutionized the way users can be reached. Users now have a known platform where they can look for different kinds of applications/tools that they need. The pricing structure of the App Store supported by growth of social media has reduced the cost of marketing to zero. iv. Growth of Smart Connected Devices: The growth of smart mobile devices with large processing power has become the backbone of the entire software industry. 4.3 Why study Freemium Model? The final question that the literature review tries to address is: Why is there a need to Study Freemium Business Model? This question can be best answered by looking at some of the statistics related to the growth of Mobile devices and App Stores. Most of the apps developed for the mobile devices use Freemium Model and this entire industry has been growing at a very quick rate, hence it becomes important to study them to create a better understanding. Growth of Smart Mobile Devices: Smartphones shipments formed 35% of all the mobile devices shipped in the last year. Worldwide mobile broadband subscriptions have exceeded 1 billion out of a total of 2 billion broadband users worldwide. Mobile data traffic has been expected to grow with a CAGR of 60% from 2011 to 2016. An average user uses 1-2Gb data on his mobile computers followed by around 800 Mb and 600 Mb on his Tablet and smartphone respectively. Online video and web browsing together contribute the most traffic coming from the mobile devices. Together these contribute more than 50% of the entire traffic. The number of mobile internet users have exceeded desktop users in both India and U.S Almost 40% of the smartphone users use their phones even before getting out of their beds. The average time users spend on their smartphones has been found to be around 2.5 hours a day.
  35. 35. Growth of App Stores: The total number of apps available for download on Apple App Store and Google play is 700,000 each with expected addition of 435,000 to Apple’s App Store in 2013. The total no. of downloads for both the platforms collectively has exceeded 75 billion with app store contributing 40 billion while Google Play contributed another 35 billion. An average iPhone user downloads more than 80 apps to add to the pre-installed 20 apps with more than 50% of these apps being absolutely free. The total market for paid smartphone apps has exceeded $8 billion. The average revenue for paid apps has been found to be around $19,560. The total revenue generated from smartphone and tablet apps(including advertisements and in app purchases) has exceeded $25 billion out of which App Store contributes around 65% followed by Google Play which contributes around 27%. Average price of a paid app was found to be $2.82. 5. Traditional Price based Sales Promotions The current studies on Freemium based business models lack an important literary comparison with the traditional sales promotion models. In the current project several concepts of the traditional price based sales promotions shall be carried forward to create theoretical background needed to understand freemium model. In the purview of the current research only price based sales promotions have been studied and their impacts on brand loyalty, purchase quantity and category incidencexlix . Time based effects of price promotion:l The benefits to end users from sales promotions can be classified into hedonic and utilitarian benefits which can be crudely understood as intrinsic and extrinsic benefits. Time based temporal effects of price promotions are the one that have been studied the most. Most researchers conclude that there are no long term impact of price promotions on brand loyalty and purchase quantity. The time frame impact of price promotion can be divided primarily into immediate effects, Adjustment (or Intermediate) effects and Permanent effects. Immediate Effects: The immediate effects are reflected in short term change in sales of the product. The immediate promotional effects are higher for brand choice than for the other two sales components viz. category incidence and purchase quantity. Adjustment Effects: The adjustment effects refer to transitional period between the short term response and the resulting new equilibrium. The adjustment effects are positive for category incidence and negative for brand choice. The positive impact on category incidence can be credited to the artificial increase in purchase due to the price promotion which implicitly offers users a risk premium to try new products and hence increase their consumption. The negative impact on brand choice can be credited to the competitive reaction and the over consumption in the immediate time frame of the promotion.
  36. 36. Permanent Effects: The permanent effects refer to the long term impact of the promotions. Permanent impact of promotions are absent for all sales components. The total promotional impact is positive for all sales components. The total promotional effects are higher for category incidence than the other two components. For storable products, the total promotional impact is higher for purchase quantity than for brand choice. However for perishable products it’s the opposite. For each sales component, the promotional effects die out within the first quarter. The quantity adjustment period is longer for storable products than for perishables. Impact of advertising on Consumers price and brand sensitivity:lilii Non price oriented advertising is expected to reduce consumers price sensitivity in the long run. The long-term impact of advertising on consumers' price sensitivity is likely to be stronger for non-loyal consumers than for relatively loyal (and less price-sensitive) consumers. In the long run, advertising will reduce consumers’ sensitivity to price oriented promotions and increase the same towards non price oriented promotions. In general, the long term effect will be stronger for the non-loyal segment than for the loyal segment. Advertising generally reduces the size of the non-loyal segment. Over the long run, price oriented promotions will increase consumers price sensitivity and hence the price oriented promotions while ate the same time it will decrease the consumer sensitivity to non-price oriented promotions. Non price oriented promotions will decrease the price sensitivity of loyal consumers and increase the price sensitivity of non-loyal consumers. Price oriented promotions are likely to increase non-loyal segment size. If price oriented promotions attract many consumers who under non promotion circumstance would have very low probabilities of buying the brand, then on the next purchase occasion average repurchase rate will be brought down by these consumers. The price consumers expect to pay for a brand decreases with an increase in the observed frequency of the price promotions of the brand. The price consumers expect to pay for a brand also decreases with an increase in the observed depth of price discounts of the brand. Impact of Price Promotion on buyers’ Internal Reference Priceliii : Another major area of study in price promotion is the study of price promotions on internal reference priceliv , perceived acquisition valuelv and perceived transaction valuelvi . There is a positive relationship between buyers’ perceptions of quality and their internal reference price. There is a positive relation between advertised selling and reference price and buyers’ internal reference price. There is a positive relationship between buyers’ perceptions of quality and their perceived acquisition value. There is a negative relationship between the advertised selling price and buyers’ perceptions of acquisition value. There is a positive relationship between buyers’ internal reference price and their perceived transaction value. There is a negative relationship between the advertised selling price and buyers’ perceptions of transaction value. There is a positive relationship between buyers’ perceptions of acquisition value and their willingness to buy. There is a positive relationship between buyers’ perceptions of transaction value and their willingness to buy. There is a negative relationship between buyers’ perception of acquisition value ad their intentions to search.
  37. 37. There is a negative relationship between buyers’ perception of transaction value and their intentions to search. There is a positive relationship between buyers’ perceptions of transaction value and their perceived acquisition value.
  38. 38. 6. Appendix: 6.1. Advertising Trendslvii : Global internet advertisement spending was pegged at $80.2 billionlviii . Total web advertising revenue in U.S $31 billion in 2011. Out of this, Google owns a 44% market share followed by Yahoo at 12.3%, Facebook at 3% and AOL at 1.5%. Out of these, the share held by each forms of advertising are: o Search: 47% o Display/Banner Ads: 21% o Classifieds: 7% o Digital Video: 6% o Lead Generation: 5% o Mobile: 8% o Rich Media: 3% o Sponsorship: 2% o Email: 1% Revenues by pricing model: o Performance based(Cost per click): 67% o Cost per 1000 impressions: 31% o Hybrid: 2% Retail advertisers, despite an overall decline, continue to represent the largest category of Internet ad spending, accounting for 20% in the first-half of 2012, or $3.4 billion, down from 4% ($3.5 billion) reported in HY 2011. Telecom companies accounted for 12% of 2012 first six months' revenues or $2.1 billion, consistent with revenues reported in 2011, which represented 14% of HY 2011 revenues. Financial Services advertisers accounted for 13% in 2012 ($2.2 billion), up from the $1.9 billion (13% of total) reported in HY 2011. Automotive advertisers accounted for 13% of revenues in the first-half of 2012, or $2.2 billion, up from the $1.7 billion (11% of total) reported in HY 2011. Computing products advertisers represented 8% of revenues in the first six months of 2012, or $1.3 billion, down from the $1.5 billion (10% of total) reported in HY 2011. Leisure Travel (airfare, hotels, and resorts) accounted for 8% of revenues in the first six months of 2012 ($1.3 billion), up from the $1.2 billion (8% of total) reported in HY 2011. Consumer Packaged Goods represented 5% in 2012, or $898 million, up from $866 million (6%) reported in HY 2011.
  39. 39. Entertainment accounted for 4% of 2012 revenues, or $729 million, up from the $556 million (4% of total) reported in HY 2011. Media accounted for 4% in 2012, or $719 million, up from the $660 million (4% of total) reported in 2011. Pharma/Healthcare accounted for 6% in 2012, or $1.1 billion, up from the $608 million (4% of total) reported in HY 2011. References: i Alibaba is the largest B2B ecommerce website in China ii Baidu is a Chinese search engine and has the largest share(61%) in the search engine market there. iii The Mosaic browser was the first browser made. However Netflix was the first popular browser and was based on Mosaic. iv http://www.tandfonline.com/doi/pdf/10.1080/10438590100000009 v http://www.tandfonline.com/doi/pdf/10.1080/10438590100000009 vi The actual stock swap value was $4.2 billion in November, 1998 but it appreciated to $10 billion by the closing of the deal in 1999. vii http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0000912057-96- 017646.txt&FilePath=1996081400&CoName=YAHOO+INC&FormType=10-Q&RcvdDate=8%2F14%2F1996&pdf= viii http://allthingsd.com/20100111/yahoos-pitch-to-advertisers-we-sell-ginormous-ads/?mod=ATD_sphere ix Deatiled statistics of the global advertising market has been mentioned in Appendix 1 x Source: http://marketingland.com/report-yahoos-mobile-ad-revenue-125-million-33752 xi Source: http://en.wikipedia.org/wiki/Yahoo!#Revenue_model xii Source: http://gigaom.com/2012/10/31/gmail-finally-beats-hotmail-according-to-third-party-data-chart/ xiii Source: http://advertising.yahoo.com/article/flickr.html xiv Source: thomashawk.com/2011/01/how-much-revenue-does-flickr-make-from-paid-pro-accounts-my-guess-50- million-per-year.html xv Source: http://articles.latimes.com/1996-04-01/business/fi-53780_1_netscape-home xvi Source: http://gs.statcounter.com/#search_engine-ww-monthly-201201-201301 xvii Source: http://searchenginewatch.com/article/2065293/Google-Launches-Gmail-Free-Email-Service xviii Source: http://www.geekwire.com/2012/farewell-hotmail-microsoft-rolling-outlook-webmail-service/ xix Source: http://online.wsj.com/article/SB10000872396390443890304578006503381099858.html xx Source: http://techcrunch.com/2012/10/18/googles-mobile-run-rate-is-now-8-billion-up-from-2-5-billion-a-year-ago/ xxi Source: http://www.statisticbrain.com/google-searches/ xxii Source: http://www.youtube.com/yt/press/statistics.html xxiii Source: http://allthingsd.com/20120621/youtubes-gigantic-year-is-already-here-citi-says/ xxiv Source: http://gigaom.com/2012/10/31/gmail-finally-beats-hotmail-according-to-third-party-data-chart/ xxv Source: http://thenextweb.com/google/2012/08/06/chrome-rises-google-browser-grabs-13-of-the-global-market- statcounter/ xxvi Source: http://www.gartner.com/newsroom/id/2335616?source=email_rt_mc_body
  40. 40. xxvii Source: http://www.youtube.com/yt/press/statistics.html xxviii Source: http://www.jeffbullas.com/2012/05/23/35-mind-numbing-youtube-facts-figures-and-statistics-infographic/ xxix Source: http://allthingsd.com/20120621/youtubes-gigantic-year-is-already-here-citi-says/ xxx Source: http://en.wikipedia.org/wiki/Wikipedia:About xxxi Source: Facebook Q4, 2012 earning slides xxxii Source: http://seekingalpha.com/article/596291-facebook-this-is-the-bet-you-are-making xxxiii Source: http://online.wsj.com/article/SB10000872396390443890304578006503381099858.html xxxiv http://www.gartner.com/newsroom/id/2335616?source=email_rt_mc_body xxxv http://www.gartner.com/newsroom/id/2335616?source=email_rt_mc_body xxxvi Source: http://www.internetworldstats.com/stats.htm and ‘Traffic and Market Report Data’ Ericsson, November 2011. xxxvii Source: Traffic and Market Report Data’ Ericsson, November 2011. xxxviii Source: Traffic and Market Report Data’ Ericsson, November 2011. xxxix Source: Traffic and Market Report Data’ Ericsson, November 2011. xl Source: Traffic and Market Report Data’ Ericsson, November 2011. xli Source: http://www.nextbigwhat.com/smartphone-users-in-india-297/ xlii Source: http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats/a#phone-shipments xliii Source: techcrunch.com/2013/01/22/new-reports-claim-the-ios-app-store-will-gain-435k-new-apps-in-2013-but- most-apps-go-unnoticed/ xliv Source: http://www.engadget.com/2012/09/26/google-play-hits-25-billion-app-downloads/ xlv Source : http://techcrunch.com/2013/01/22/report-market-for-paid-apps-hits-8b-in-2012-while-average-revenue- per-app-drops-27/ xlvi Source: http://techcrunch.com/2013/03/12/abi-tablets-will-take-a-35-8-8bn-app-revenue-share-this-year-passing- smartphones-by-2018/?source=email_rt_mc_body xlvii Source: http://techcrunch.com/2013/01/22/report-market-for-paid-apps-hits-8b-in-2012-while-average-revenue- per-app-drops-27/ xlviii Source: ‘HOW THE MOST SUCCESSFUL APPS MONETIZE THEIR USER BASE’ report by Distimo Publication, March 2013 xlix Category Incidence refers to the total change in sales for the particular category of the product irrespective of brand. l Source: Koen Pauwels, Dominique M Hanssens, S. Siddharth; ‘The Long term effects of price promotion on Category Incidence, Brand Choice and Purchase Quantity’; Journal of Marketing Research, Vol. 39, Nov. 2002. li Source: Maohar U. Kalwani, Chi Kin Yim; ‘Consumer Price and Promotion Expectations: An experimental study’; Journal of Marketing Research, Vol. 29, Feb 1992. lii Source: Carl F. Mela, Sunil Gupta, Donald R Lehmann, ‘The Long term impact or promotion and advertising on consumer brand choice’, Journal of Marketing Research, Vol. 34, May 1997. liii Source: Dhruv Grewal, Kent B Monroe, R Krishnan; ’The effects of price comparison advertising on buyers’ perception of Acquisition Value, Transaction Value and Behavioral Intentions’, Journal of Marketing, Vol. 62, American Marketing Association, April 1998.
  41. 41. liv Internal Reference Price is defined as a price in buyers’ memories that serve as a basis for judging or comparing actual prices. lv Perceived Acquisition Value has been defined as the buyers’ net gain(or trade off) from acquiring the product or services. lvi Perceived Transaction Value has been defined as the perception of psychological satisfaction or pleasure obtained from taking advantage of the financial terms of the price deal. lvii Source: IAB internet advertising revenue report, October 2012. lviii Source: http://www.go-gulf.com/blog/online-ad-spending/
  42. 42. Section 3 Study on Freemium Products: Web Survey to understand User Preferences Created by: Tarkeshwar Singh Senior Undergraduate, Department of Electrical Engineering, IIT Gandhinagar Under the Supervision of Prof. Krishna Prasad Miyapuram Department of Computer Science & Engineering, Indian Institute of Technology, Gandhinagar, India
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