The Beauty of Freemium
In today’s digital age, every business strives to not just keep up to date, but also find the best way to monetize their business online. I believe many of us are one way or another exposed to freemium on social media platforms, sites or applications (apps).
A combination of free and premium. Users will be able to enjoy and explore the app without time limit for free. However, some advance features of the app will only be available to paying users.
Providing users with basic services for free makes it easy to attract users as it entices them to try out the app, making the bar to entry for new users very low. Free users are good marketing, as they are potential users who may convert to paying user. Not only that, free users are also likely to spread the word about free services. These results in the decrease in customer acquisition cost (CAC) for the business.
Customer Loyalty:
Critics often believe that freemium apps do not generate strong customer loyalty, as users will game the free system and when there is nothing else left for them, they will jump to another free app for similar purpose. However, I personally believe that customer loyalty is largely dependent on the quality of the free version. Businesses that provide good quality services will have both free and paying loyal customer base. Most free users will enjoy using the app and have no reason to switch to another app, while some may enjoy the app so much so that they are willing to pay for even more features.
Revenue Streams:
Freemium funnels typically convert only 2 - 4% of users who try the product. Hence, freemium apps do not just earn money from paying users, they can also monetize the free users’ platform by featuring paid ads from other businesses. This way, freemium apps get paid by other businesses on a monthly or annually basis simply by featuring ads on the app. Users of freemium apps often start off with the intention of just trying out since it is free. After some time, they start getting hooked and introduce it to more of their friends. They will reach a point where they get so irritated by ads and would rather pay a small amount each month to have ads removed or simply want additional features and would happily pay for the upgrade. This is how free users convert to paying users.
Freemium accounts for 71% of Apple's AppStore revenues in the United States. In the customer management category of SaaS companies, 32% used a freemium model. 65% of the top game revenues at Apple’s App Store were from upgrades of the Freemium model. These accumulated to billions of dollars.
Examples of Freemium:
To conclude, the beauty of freemium model is that users are able to try out the core of the app to get a feel if it suits them. If they love it so much and want to explore the more enticing features, they will then get it at a premium. Freemium is able to gain a large user base in a relatively short amount of time, reducing customer acquisition cost. Customer loyalty will be built upon quality of the free version of the app. Monetising freemium is not just through the paying users, but also via the featuring of ads on the free users' platform. To decide whether or not to adopt freemium, businesses should study the market and adopt accordingly.
Cheers,
Dayna.T
