Freemium, a word derived from “free” plus “premium”, is now being recognized as the future of digital business. Chris Anderson unveiled his insightful observation that free content, services or products would play a critical role in the future business. He believed that the new business model, charging for advanced features while offering basic services for free, is the trend for online companies. The model was based on the notion that if you gave consumer a taste, they’d happily be hooked and pay for more. Today, we can find that some companies really earn profits by offering a free service or product with an upsell or premium version.
This innovative model seems promising, doesn’t it? But in real world, online companies that can make money based on this freemium model are still few. There are many difficulties you would encounter when you decide to adopt this business model. In the beginning, you have to come up with an idea of what service, product, or content is likely to accumulate sufficient followers. This is the most important step to your startup since the freemium model would fail without large amount of fishes in your pool. If you really have such a great idea that could gather uncountable users, you still have to decide what to put in the free version and what to offer in the premium version. The answer is not that trivial. The target of your free version is to appeal users, so you need to put enough in your free version to get traffic but not so much that there’s not enough incentive for a certain percentage of people to upgrade. The final issue is pricing for your premium version. The price of your premium version should be competitive to your free version. This means that in order to convert your free audiences into paid customers the price shall be reasonable. An exorbitant price would cause the willing to use advanced features lower; therefore reducing the conversion rate from free to paid. The issues mentioned above are not that easy to answer, since different products, services have distinct financial structures, and acceptance.
In fact, I worry about this destructive innovative business model. This killer has already destroyed or toppled many traditional industries, particularly the media industry. However, the lost in journalism is far beyond the gain online. This free mechanism kills the traditional charging model no matter paid by customers or advertisers, but it seems that this destructive model cannot fill the gap between the lost in old times and the gain in digital age. Furthermore, the model with a high probability would downscale the economy since it only charges little for a few percentage of users. This may cause harm to the society by the rise of unemployment rate, the decline of wealth and so on. The social impact by this freemium model is also a critical topic in the social media area.
