The document explores the concept of freemium business models, where a core product is offered for free while premium products are sold to a smaller user base. It discusses the origins, misconceptions, and challenges of freemium, also considering potential alternatives that focus on quality over features. The conversation invites a reevaluation of how quality in services could be offered to users for free, while premium options cater to those seeking enhanced experiences.

1. +
Is Quality the new
Fremium?
Tathagat Varma
http://managewell.net

2. +
Why this topic?
n This is meant to be a provocative talk!
n The idea is to explore how agile thinking could be applied to
such an idea.
n This is also a work in progress…don’t construe as a fixed and
final position.
n It is possible that the whole idea might be a false start after
all…or maybe not J

3. +
Freemium?
n Free + Premium = Freemium
n A business model in which you give away a core product
free to a large group of users and sell premium products
to a smaller fraction of this user base.
n All industries in which a quality, free product can be
duplicated with virtually no marginal cost can
successfully utilize a freemium business model.
n Examples:
n B2C: Skype, LinkedIn, DropBox, Google Drive, SurveyMonkey
n B2B: Box, Splunk,Yammer
http://www.freemium.org/what-is-freemium-2/

4. +
Origins of Freemium
n Popular since 80s by distributing shareware through floppy disks, but really took off in
the internet-era due to very low marginal cost of production and distribution.
n In 1983, the Economist Carl Shapiro wrote a fascinating paper about this subject. His
conclusion was that since customers tend to underestimate the value of a product, the
optimal pricing for an experience good is a low introductory price which is then
increased when the customer realizes the value of the product.
n Ester Dyson in 1994 envisioned a world where intellectual property would cost nearly
nothing to distribute in the paper Intellectual Property on the Net.
n “Give your service away for free,possibly ad supported but maybe not,acquire a lot of
customers very efficiently through word of mouth,referral networks,organic search
marketing,etc.,then offer premium priced value added services or an enhanced version
of your service to your customer base.” --- Jarid Lukin,“My Favorite Business Model”,
2006
n Fred Wilson coined the term “Freemium” in response to Jarid’s blog post.

5. +
Freemium ≠ Free Trial
n A common misconception is that freemium consists of a free
trial, especially when it comes to software.This is not correct.
n A free trial allows users to try out a product or service for
limited time, after which the user must pay to continue using
the product or service.
n A freemium model, on the other hand, provides a free
product that is always free, generating value in itself. Some
users may purchase one or more premium products, but
typically only a small percentage will do so.
http://www.freemium.org/what-is-freemium-2/

6. +
Free is Not Always Freemium
n Another common misconception is that all business models
that involve the use of free products are freemium models.
n freemium is not the same as advertising (even though the two
business models are often combined)
n freemium is not the same as cross subsidizing (e.g., getting a
phone for a dollar and then paying for it through a subscription)
n freemium is not the same as a gift economy
http://www.freemium.org/what-is-freemium-2/

7. +
Does it work?
http://mashable.com/2014/06/26/freemium-apps-google-play
Google Play
Revenue
Came From
Freemium
Apps in May
98%

8. +
Why it works?
n “Free” = “Nothing to Lo$e” in a customer’s mind
n Though “time” invested it often ignored!
n Free features are a great marketing tool
n Network effect, e.g. Skype or Facebook, etc.
n Reciprocity Principle

9. +
Where it works?
n Markets that already exist with
n paying customers (as opposed to unpaid hobby or passion)
n but yet there are gaps in existing service
n Compelling reason to upgrade, i.e. where
n Value provided by free product isn’t considered too much or too
little
n Exceptional value in the paid version compared to the free
n Cost of servicing free users < Dollar value they provide
http://www.forbes.com/sites/brettnelson/2013/07/23/the-freemium-model-top-flaws-and-potent-fixes/

10. +
Challenges
n The Penny Gap:
n How to get users to sign-up for the paid services, especially when
they don’t perceive any difference in CX?
n Which feature to give away free and which to price?

11. +
Existing Model
Quality
Features
Paid by
few
Free to
all

12. +
What If?
Quality
Features
Also Free
to all?
Paid by
few
Free to
all

13. +
Why (if at all) would that make
sense?
n Say, the customers want to see, touch, feel and try 100% of
product features before buying it?
n After all, current hypothesis is based on just the reverse, i.e.,
people will not like to obtain low-quality goods even when
offered free…
n What if there was a merit in the counter argument, and a
market to support it?

14. +
What would it mean?
n A fully-functional but perceived to be low “quality” product or
service available to all for free (or small fee)
n The fully-functional and high “quality” upgrade available as paid
version (maybe based on “grades” of quality?)
n The low “quality” could be?
n Unstable software, e.g. hangs or crashes frequently
n Slow software, e.g. low-bandwidth servers
n Unreliable software, e.g.“best effort” availability
n Poor User Experience, i.e. not a highly usable software
n UnPortable Software, i.e., not supported on all platforms
n Isn’t that already happening???

15. +
Google services: Free but Not
always available…
https://www.google.com/appsstatus#hl=en&v=status&ts=1403893799000 and http://www.google.com/apps/intl/en/terms/sla.html

16. +
Yahoo! Web Domain Services

17. +
Open source model?
n All features free to install and use (DIY)
n Pay companies for better support (not mandatory)

18. +
Cities?
The municipal tax (kommunalskatt) varies
depending where you live – from 29% to 36%.

19. +
And perhaps many many more…
n Free water – Tap Water – Bottled Water
n Free Healthcare – Paid Healthcare
n Free Primary Education – Private School – Elite Schools

20. +
What does it mean to design,
deploy and deliver?
n Understand what people want
n Give them the features they want
n In shortest time and cheapest manner
n Without worrying about a lot of “quality”
n Perhaps MVQ – “Minimum Viable Quality”?
n …in short, treat everyone as your “earlyvangalist”?
n And involve them in your product evolution process J
n Those who want a better user experience / quality, pay for it!

21. +
Incremental / Agile
n Delivering 100% requirements in a single-pass release is not
a good idea
n Stagger the functionality
n E.g.
n MVP: 30% functionality, 100% “Done”
n Rel1: 60% functionality 100%,“Done”
n Rel 2: 80% functionality, 100% “Done”
n Rel 3: 100% functionality, 100% “Done”

22. +
What if?
n We stagger quality instead of functionality?
n Probably deliver 100% functionality?
n E.g.
n MVQ: 100% Features, 20% “Done”
n Rel 1: 100% Features, 40% “Done”
n Rel 2: 100% Features, 70% “Done”
n Rel 3: 100% Features, 100% “Done”

23. +
Why this might not be such a
dumb idea?
n Finally, it’s all about economics of software development
n If everything else being equal, and
n Cost of downstream quality >> cost of upstream quality, then it
makes sense to build that first
n Cost of downstream quality ≅
cost of upstream quality, then it
might make sense to work on other variables?

24. +
Recap…
n Current freemium is a smart trade-off of features over time
with the quality being non-negotiable
n What if quality was traded over time with the features being
non-negotiable
n In many walks of life, there are examples. Certainly for the
Bottom of the Pyramid segments.
n In software development, there *might* be an opportunity to
create a true level-playing field among all users
n Can you think of some examples?

25. +
References
n What is freemium?,
http://www.freemium.org/what-is-freemium-2/
n Makin “Freemium”Work,
http://hbr.org/2014/05/making-freemium-work/ar/1
n The ‘Freemium’ Model:Top Flaws and Potent Fixes,
http://www.forbes.com/sites/brettnelson/2013/07/23/the-
freemium-model-top-flaws-and-potent-fixes/
n The Complete Guide to Freemium Business Models,
http://techcrunch.com/2011/09/04/complete-guide-
freemium/