Freemium is a very hot word in the Internet orbit right now for good reason.
Under a freemium business model, you get some functionality in a product or service for free, and then you have to pay to upgrade if you want more functionality. It’s the idea of giving something away for nothing as a teaser to try to get people to pay for it.
The New York Times reports there an iPhone game called Temple Run that wasn’t doing well under its original pay model. So late last summer, the makers started offering it for free. Now, it has more than 40 million downloads, and 13 million of those people play Temple Run every day!
When a game is given away for free, what happens over time is that people end up spending money for a more premium version.
In the same way, two thirds of the revenue generated in Apple’s App Store comes from free games. People get the stuff for free and then they ended up buying other things.
Freemium works if done right. You think about a company like Net Zero that just started offering free wireless Internet in the hopes they can upsell people who go after their deal. We’ll see how that plays out.
The challenge is you need a business plan that makes people want to come back. Free can be a way to get paying customers, but you have to be careful that you’re not always giving your product away for free.