The Difficulties of Freemium

I am a victim of freemium. A lot of us are. Freemium is a business model in which, as Vineet Kumar (2014) explains, “Users get basic features at no cost and can access richer functionality for a subscription fee.” One of the most popular examples of a freemium service out there today is Spotify. With Spotify, you can stream any song you want (assuming the artist has allowed it). There are two major catches: ads and the inability to download music and listen to it offline. It is the latter reason that has caused many of my friends to pay for Spotify’s premium service. Spotify was their main source of music, and they listened to it constantly — it made sense to pay for the premium service so that they could listen to their music on the go. Not having to listen to ads was just a bonus.

Though I personally don’t use Spotify very much, there have certainly been many other instances where I’ve chosen to start paying for something I was initially using for free. The most embarrassing example would be Draw Something. The more common example would be Amazon Prime, although Kumar (2014) makes a distinction between freemium and paid services that offer free trials, stating that those tend to be less successful due to people’s distaste for complicated cancellation processes. That being said, successful services with free trials such as Amazon Prime or Netflix would probably beg to differ. In the end, the result is the same — I tried Amazon Prime for free for six months, became addicted to free two-day shipping, and agreed to keep paying for it solely based on that. There are other perks, of course, such as Prime Video, but the promise of that isn’t what brought me to Prime in the first place. Instead, I decided to pay for it because it was something that had become essential to me.

That, ultimately, is how freemium is successful. If someone uses Spotify so often that it eventually becomes their main source of music, then it stands to reason that, eventually, they will want to be able to listen to that music without needing Internet access to do so. That is the moment when upgrading to a premium account becomes worth it. It’s not an easy feat to accomplish by any means. Kumar (2014) discusses the difficulties in his article, explaining how companies have to find the balance between offering too few free services and too many. Too few, and they may not be enough to convince users to upgrade; too many and users may not need to upgrade (Kumar, 2014). There’s even a balance between what percentage of the userbase paying for premium is ideal. Too little means the company won’t make money, while too much implies that there are not enough free services being offered to bring in new traffic (Kumar, 2014). Kumar notes that companies also have to be willing to innovate, both with free services and paid services. If they stay stagnant for too long, it will become harder to bring in new traffic.

Freemium is an intriguing business model, and one that has become increasingly common with Internet start-ups. When it works, it works well. However, it is always a gamble. Like any other product or service, freemium businesses have to convince users that their product is essential to their lives. But freemium businesses must go one step further and convince their users to start paying for a service that they’ve been using for free.

References:

Kumar, V. (2014). Making “freemium” work. Harvard Business Review. Retrieved from https://hbr.org/2014/05/making-freemium-work