Why is Freemium So Powerful?
The Freemium Model — Giving It Away To Cash In
These days there are a lot of apps, games or programs being offered free of charge. They are easy to download and easy to use, in all likelihood you already have some in your smartphone, android, iPad or any mobile electronic device you own.
As these apps are free you would not expect that some of these are actually earning millions for their developers. It’s a cunning strategy really; to make money offer something up for free.
These lucrative yet free apps, games, programs or similar products are what we call “freemiums” and indications point out that this is strategy working out where the mobile electronic device industry is concerned.
What is a Freemium?
A freemium (coined from the words ‘free’ and ‘premium’) is an application, game, or any service that a company provides free of charge but with the view to eventually make money from it by charging for upgrades, improvements or additional services.
A freemium is usually not the full version of the app or game or does not cover the full spectrum of service. It is rather a limited version of these.
These limitations can range from “lite” versions of programs, limited bandwidth, storage space, client restrictions or other such limitations.
Other developers opt to offer freemiums with full features available for a trial period, after which the freemium stops working and will only resume after users buy a license or pay the activation fee.
Freemiums do not work in the traditional sense a product does. Since it is free it does not directly generate revenue from sales, and in the case of mobile apps these can still be considered economically feasible even with as little as 10 percent of freemium downloaders actually choosing to spend money for premium services.
We all know that from a traditional business standpoint this is very unacceptable. So why do developers still choose the freemium strategy?
Why Would You Ever Make It Free?
Part of it is really strategy. It’s all in the getting the attention of customers and people are drawn to the “free” tag.
According to a recent study on mobile electronic device users by Forrester research, more than a third of survey respondents said they have not paid for any apps they own while another third said they only paid for about a fourth of the apps they use.
In other words people are clearly interested in free stuff. If you offer anything for free users will most likely download it.
Offering free stuff also means getting to more people more quickly and distribution no longer becomes a problem because essentially developers will not be giving away freemiums, users will taking away it from them.
A freemium is also an excellent way to get users to try an app, game, service or any program and get them hooked in the process.
How Does it Earn?
We’ve already mentioned that only a few of freemium users actually pay to get premium. So why isn’t it this strategy dead yet?
Experts point out that in the long run the slow and steady revenue from freemium apps is more rewarding compared to income generated by regular apps.
For regular apps revenue is earned immediately at download, which often means a one-time thing. Money will only start coming at the beginning and maybe for a limited amount of time. With freemium apps income streams in slowly but steadily if more and more users start to appreciate the app and choose to spend money for it.
With the right marketing and strategy a developer can keep a freemium relevant as long as is needed.
Factors developers have to consider
- Reach. You have to let people know what is available to download. If few people know about your freemium you can bet your bottom dollar even fewer will be interested in spending money for it. More downloaders always translate to a more potential revenue.
- Quality. How good is your product? Is it good enough for people to consider trying your freemium and then perhaps getting interested in paying for freemium? If the product does not have any appeal at all to prospective downloaders then it is useless. And if it is that bad disappointed downloaders are likely to share this information with other downloaders.
- Duplication. Minimal expense must be incurred in reproducing the freemium, but in this aspect technology is on the side of developers as digital data is so easy to duplicate nowadays.
- Distribution. Not really so much of an issue as it used to. As we’ve already mentioned above it takes care of itself. People will be downloading the freemiums developers do not have to send it to them.
The Risks of Freemium
Detractors of the freemium strategy have their own reasons for staying away from it, saying it entails too many risks.
- Limited time. In the first place a freemium is intended to be available only for a limited time. You can’t expect something free to be available forever can you? And the less time it is available the less time there is to make money from users.
- Freeloaders. Another risk is that offering apps for free tends to attract downloaders who are reluctant to spend money. They got it because it was offered free of course. It does not matter if your app was downloaded millions of times, if none of the downloaders are persuaded to pay for upgrades or premium then the freemium is a failure. It may not be easy to persuade downloaders to pay for something they can just get for free.
- The competition. Also with the many kinds of freemiums being offered in Internet, there is a likelihood of downloaders totally ignoring a particular freemium for something similar.
Worth the risk?
But are the risks of using freemiums paying off?
Based on figures, developers who know how to manage the freemium strategy are doing well.
Last year App Annie Intelligence, a company that tracks more than 700,000 apps reported that a two-year study showed revenue from freemium apps has eclipsed that of premium ones where the iOS and Android are concerned.
iOS global revenue for freemium apps reportedly quadrupled for iOS and more than tripled for Google Play.
Revenue from premium download apps showed no significant signs of increase.
It’s not just a trend in the US but in Asia as well. App Annie reports dramatic increases in China freemium revenues on iOS and Japan freemium revenues on Google Play.
In fact in terms of Google Play Japan now dominates with whopping 29 percent of the worldwide market share followed by US with 26 percent and Korea with 18 percent and rising.
While many developers are riding a successful freemium wave right now experts said this does not mean all apps should have a freemium version.
The freemium model is not ready a one-size-fits-all solution to all marketing mobile app strategies.
There will always be consumers who will pay money up front for something they deem a good product, but there will also be others looking for a steal before a deal.
Originally published at www.bluecloudsolutions.com on March 26, 2013.