freemium: when it works

December 10, 2010

Freemium is an increasingly popular business model among software developers, in desktop, mobile and web apps. Popular online utilities Dropbox and Evernote use the freemium model with huge success, creating a profitable environment for users and the respective companies. Almost every popular iOS app (Angry Birds for example) offers a free or ‘lite’ version of the paid app.  There are a number of defining characteristics of every implementation which are essential for this model to succeed:

  • Great Long-Term Retention: In a freemium system, users tend to use the application or utility for a reasonably long period of time before upgrading or registering. Consequently, the app needs to maintain the user’s interest until they decide it’s time to pay for it. This means that games tend not to be very suited to the system: they’re most valuable in the first few days, and become less valuable over time. Apps such as Angry Birds have managed to work around this however, by ensuring the free version fits just within a narrow band in which users have just enough time to enjoy the app and get hooked on the gameplay, before the lite version finishes: meaning many users will upgrade to continue playing. Utility or productivity applications generally have great retention rates, but any application can create that retention simply by producing a fantastic product.
  • Increase of Perceived Value Over Time: A major motivator in the continued use of an application, and in increasing the percentage of users upgrading, is the feeling that an app gets more valuable the longer it’s used. This can be through frequent updates to the program, adding features and fixing bugs, or simply through ensuring a great lifetime service, as Evernote puts it: “we want to be the secure, trusted repository for your lifetime memories“.

A big mistake that a lot of software vendors make is trying too hard to force users into upgrading from the free version, whether through a major lack of features in that version, or from  an endless stream of popups and requests for payment. Basically, if users think that the free version is so good that they don’t have to pay, then you’ve done a great job. If the quality of the product there, users will pay.

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One Response to “freemium: when it works”

  1. […] succeed is through making everything free, and consequently, that’s exactly what happens. The freemium business model has become commonplace, and the consumer is enjoying a period in which they can find just about any […]

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