Freemium is the combination of two terms – free and premium – and is a business model whose strategy is to offer a digital product or service for free in its base plan, but that becomes paid from the moment the user wants to enjoy extra features.
If the user wants to keep the basic features of the plan, he will continue to use the service without any problem. But this business model, as the name suggests, wants to make a business grow and that’s why it is designed so that the user moves on to the next plan – the premium version.
The strategy of this model, which began to be used by software companies in the 1980s, is simple: attract a large number of people to a free service, hoping that a part of them will eventually surrender to the paid product – typically 5% of users with paid service end up “sustaining” the entire business model; anything above this is seen as a success.
The mechanism is simple: attract, conquer and convert.
The companies provide the free service, but during the user experience, they make a point of advertising the premium features of the same service, trying to drive the user towards purchase.
This may all sound very technical and abstract, but if I tell you about the specific case of Spotify – where I ended up becoming a conversion – or Dropbox, this model makes more sense.
Spotify’s example of success
The Swedish music streaming company has seen sustained growth in its paid users. The premium user base has increased dramatically in recent years and more than doubled in early 2017.
In the fourth quarter of 2020, Spotify had 155 million paid users worldwide, 31 million more than in the same period of 2019, according to data from Statista. It should also be said that Spotify, where freemium seems to work, was the first music streaming service to reach 100 million paid users.
According to figures revealed by the same source, Dropbox also seems to be thriving on the back of this strategy: the cloud service for storing and sharing files revealed it had 15.5 million paid users in 2020, a million more than the previous year and almost nine million more users when compared to the same period in 2015.
Of course, this strategy is not suitable for all businesses. And even in those where it fits like a glove, it is quite likely that it will not bear massive results right away, and may even make a loss for long and painful years.
This is a path where the company starts by giving something, hoping that in the future the return will come. In addition to Spotify and Dropbox, Skype, Mailchimp, and Evernote base their business on this model.
We don’t always realize that Digital Marketing has such a strong presence in our daily lives and in the decisions we make even in the simplest aspects, such as the platform we use to listen to music while we work.
Paradoxically, this is what makes it so powerful and effective.