
Freemium is Not a Business Model - buckpost
http://www.markevanstech.com/2008/10/17/freemium-is-not-a-business-model/
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thorax
It's making billions of dollars in the gaming industry (particularly with the
play for free, pay for added content MMOs). I don't think it's the fact that
the concept of "freemium" is flawed for consumers, but you need to have very
compelling premium content. Just be sure you pick segments where there's a
strong incentive to upgrade as a natural progression of the service.

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nihilocrat
I'm particularly curious about this market. It's definitely comparing apples
to oranges, and thus this article can't really be said to speak to freemium
MMOs. The market is different, the products are different, just about
everything is different. I am wondering if anyone has done any in-depth
research about MMO business models; working for an MMO company, it's obviously
something I'm very interested in.

Most 'freemium' MMOs are Korean. I don't mean to make a generalization, but is
the Korean gaming culture much more serious than the US/EU one, and thus this
model is much more successful in Korea? Many (if not all) of these Korean MMOs
are available in the US, but I have no idea if the nonpaying/paying gamer
ratio is better or worse, and those figures might unfortunately be private.

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thorax
I don't think it's apples to oranges, personally. Unless you mean "examples
where it does work" versus "examples where it doesn't work" as a business
model.

I'm no expert here, but these guys seem to believe addon and premium content
will be the main business driver for MMOs long-term and try to make that
point:
[http://www.techcrunch50.com/2008/conference/presenter.php?pr...](http://www.techcrunch50.com/2008/conference/presenter.php?presenter=93#video)

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potatolicious
Freemium in MMOs is different from most freemium implementations that startups
have. In the game case you have an extremely low barrier to entry, as well as
a social incentive to buy into the premium aspect of the product.

With something like, say, the poll service from the article, there's no social
incentive to upgrade, and the cost of doing so is non-trivial (more so than,
say, a $1 sword).

There's a difference between "hey, now that you're hooked, buy this $1 thing"
and "hey, now that you're hooked, buy a $20/month subscription"

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thorax
That sounds like an argument to change how to make freemium more successful--
it doesn't sound like a counter-argument against the fact that they can be.

Why don't more freemium services allow one-shot addon purchases instead of
subscriptions?

I know one of our sites is going to help soothe the pain of purchases by
buying "credits" in batches that can be spent in different ways rather than
requiring a CC# every single time they want to buy something.

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potatolicious
The other poster is right: half of the reason people BUY these things in MMOs
and on the SA Forums is because of social status. I doubt many people would
buy a shiny Sword of Infinite Destruction +5 in their MMO if they were the
only ones who got to see it. People are by nature vain creatures, and if you
give them a chance to pimp out their gear and appear more elite than the rest,
it's a big bump to the incentive to purchase.

This works great in social networks or game worlds - not so great if you're
running a site that does poll aggregation technologies.

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nihilocrat
I concur; if you study MMOs carefully (okay, not even that carefully), you
will notice that the most successful ones tend to be loot-oriented ones, and
after a player has hit the level cap, the reason they keep paying their
subscription is e-loot, and to a lesser extent, e-friends.

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sanj
_If there is a foothold for freemium, it’s the corporate market where
customers are willing to pay for high-quality services as well as customer
support. This is why companies such as 37Signals and Freshbooks have thrived
because enough customers want more than freemium services._

Which means "yes, it is a business model."

The key to Freemium is the same key to crippleware: give away enough that a
user can experience enough of the product to acknowledge its value. Keep
enough back that you can charge for it. That balance is hard, but not
impossible.

The strange thing that I've found over the years is that the balance requires
_creativity_ to pull off. Using a magic number (>1000 accts, >100 friends, >2G
of space) is a mark of being lazy. The question whether you can offer
substantially _new_ abilities to the customer. Something that makes the
product different in a way that isn't a simple extrapolation of what it
already does.

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gertburger
As I understand the article it suggests that the free side of freemium is
feature full enough for almost all users leaving very few users willing to
pay. Isn't this then just a case of balancing the features in the free and pay
versions so that a larger chunk of users would need a entry level pay version
for doing anything beyond the basics?

~~~
opal
There is always a competitor willing to give more away for free with the bet
that they can make up for it once they control the market.

This is for the WEB though where cost/user is low and cloning a product is
easy. Other platforms are vastly different.

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jhancock
In a time when VC money is scarce, fewer can play the "accumulate users and
charge in the unforeseen future when all your competitors have died". In this
type of market, freemium is a tough play.

Which is nice. I prefer old-fashioned biz models where you put out a product
and quickly find out if people are willing to pay for it.

~~~
opal
Seeing if people are willing to pay for it is still a great metric. But until
(if ever) the advertising bubble actually pops, extremely few web products
will be best served by freemium.

I can count web freemiums that made more money than their free counterparts on
half a hand.

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JoelSutherland
Misleading title. Freemium IS a business model. Giving away things for free is
not.

If anything, this article is a good description of how freemium can work. It
seems to work well in the corporate market and it doesn't work when there are
only minor differences between the free and pay versions of a product.

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olefoo
Freemium is just another name for the old Razors/Razor Blades model.

It's all about finding the right complements of your core business that people
will pay for. Whether it's an ad-free service (flickr,basecamp), access to
critical resources (most every dating site), or nice software that works best
w/ your hardware (iTunes on windows).

The two variables you want to track especially closely are the per customer
cost of acquisition and profit per customer.

//the OP is either linkbait or just dumb

//O yeah. <http://news.ycombinator.com/submitted?id=buckpost>

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charlesju
I agree that there are risks involved with the freemium model, but I think
there is still a lot more merit to those that use it.

I think one interesting case study of the Freemium model is iPhone games. It
seems to me that most people want more than 1 or 2 levels and are willing to
play only after they get a chance to test if the game is actually fun.

~~~
potatolicious
There's a difference between iPhone "shareware" games and freemium web
businesses. After you beat the 1 or 2 levels on the iPhone game, the utility
of those two levels drops of considerably... i.e. you can no longer derive
much use replaying these levels.

With most freemium websites, the free service is offered perpetually, and thus
the utility of keeping the free stuff stays the same as the first time you
used it.

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HeyLaughingBoy
The danger in the freemium business model is understanding just what features
are worth paying for and which ones are not.

About 12 years ago there was a circuit-board layout program (PADS-PCB) that
followed this model. The paid version started at about $900 (and went up to
about $5,000 IIRC depending on features you wanted) and the free version was
limited to small circuit boards and 70 components. I downloaded the free
version to use in my "basement business" and never needed to upgrade: 70
components was plenty for me. Talking to a salesperson a few years later, I
found out that the company lost money hand-over-foot because only relatively
few companies needed to build boards larger than the freeware version could
handle: the market was changing and electronic component integration was
increasing so a single part could now do what a couple years before would have
required 5-10 parts. Most of the companies that were happy with the free
version would have had no problem paying the $900 had the free version not
been available. The software was excellent and even the free version would
have been worth the $900, but obviously if it did what you needed, there was
no reason to pay.

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jrnkntl
Flickr is the perfect example of a well worked out Freemium example. Same
story for last.fm. You can do it, but I think that the features you're
offering 'extra' are not just 'extra' but great and enhanced adds to the
service they're already experiencing.

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lux
In my experience, freemium can be a really tough sell, and it depends on who
you're after as a customer. Consumers (man I hate that word) will pay extra in
small amounts as evidenced by the iPhone app store, online games, etc. but
I've found it can be tougher to get them to pay for something less fun-
oriented. They aren't businesses, after all.

My first business distributes an open source app and sells a paid version of
it. We've been in business for 7 1/2 years now and it's been my sole source of
income for 7 of those (subsequent business attempts aside :). But that's
targeting businesses, and not necessarily small ones either. The freemium side
of open source works to a certain size in the corporate world, because of
things like the perception of support. But in this case it's software as an
install not a service, and so there are problems with scale.

My next business tried to sell something to individuals (ah, much better than
consumers :), and that was really tough. I discovered that about 99% of our
revenue was going to come from advertising, which hit a plateau and couldn't
continue to grow like we needed. C'est la vie.

My newest business is again targeting business users, again with a kind of
freemium model (we offer a basic free account), and I really think we might be
onto something big with it this time. So it can definitely work, but it does
have its own set of challenges, and sometimes they can be killer ones.

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iamdave
_Freemium is flawed because most people don’t need more features than what
they can use for free._

I guess wholesale stores like Costco and Sams club are flawed because people
don't _need_ more food than what they can get at a cheaper unit price. Just
like buying groceries wholesale gets you the better deal by virtue of unit
price, it's the same with Freemium.

Let's look at BaseCamp. BaseCamp under Mark's logic is a flawed product
because no one ever manages more than one project at a time, which is what you
are limited to with the free version. It only makes sense to buy in bulk what
you can get for free because more often than not, you get more for what you
pay for.

I don't think freemium users are missing the point of business, I think Mark
Evans is missing the point of business: make money.

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nanijoe
I thought I was going to read an article about how the author tried the
freemium model and it did not work, and then he switched to something else and
became rich. Well, you know what they say about opinions...

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pchristensen
[http://www.pchristensen.com/blog/articles/freemium-isnt-a-
bu...](http://www.pchristensen.com/blog/articles/freemium-isnt-a-business-
model-its-a-marketing-and-trust-strategy/)

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opal
Very true. On the web, it's not uncommon for free vs paid users to be
1,000,000 to 1. For desktop apps it may be different, but online, way over-
hyped.

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fbailey
5% is the normal ratio

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opal
4.53% is the accepted ISO standard.

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mjnaus
The title should have been: "Freemium might not be a good business model for
most consumer applications". That title would have made sense...

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Tichy
Seems to work well for Xing.

