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Succeeding with freemium: strategies for implementation
Abstract
Purpose: The freemium business model has recently become one of the most dominant business models in online markets. However, entrepreneurs and managers still have a limited understanding of why some companies using freemium business models become successful and sustainable while others do not. The purpose of this article is to highlight the key points for succeeding with the freemium business model in online digital business from a strategic point of view.
Design/methodology/approach: The findings and recommendations derive from the study of online digital companies and applications, which either succeeded or failed to develop a sustainable freemium model. These are LinkedIn, Spotify, Box, Eventbrite, Chargify, Gasketball, and TravelCrony.
Findings: The article describes the generic strategy and the key strategic choices that enable and support successful freemium business model execution in an online digital business.
Research limitations/implications: The research is limited to digital companies applying a freemium business model and offering their products and services online.
Practical implications: The findings and recommendations can help new and existing companies first, to evaluate if the freemium business model is feasible for them, and second, to adjust strategies to develop a successful freemium business model and scale it up.
Originality/value: The article extends the current understanding of the freemium business model logic.
Keywords: business model, business model innovation, freemium business model, freemium
... Game developers tend to use a business strategy with a freemium or free to play (F2P) model to attract customers, namely by inviting customers to download game applications for free and then customers can buy content or items in the game (Pradhipta, 2021). In principle, the freemium strategy divides consumers into two groups firstly; non-paying customers will get a limited value proportion for free; secondly, paying customers will get a more increased value proportion for premium (Holm & Jensen, 2017). The business strategy unit above can attract the interest of customers or game users in exploring the game, especially if the game has a Massively Multiplayer Online Role-Playing Game (MMORPG) type. ...
... In the game industry, the development of microtransactions is supported by a freemium model business strategy known as free to play (F2P). This means that customers can download games for free, but customers are encouraged (to explore games) to make purchases from commodities in the game, except for customers who use the game for free, they will get a limited proportion of value while increasing levels or get cosmetics in the game must go through the grinding process (Hamari et al., 2020;Holm & Jensen, 2017). In a study, it was also found that customers have a positive attitude towards service providers when there are events at low prices and make customers' purchase intentions higher. ...
... secondly, free users must play the game continuously (Holm & Jensen, 2017), thirdly by watching advertisements (Sheng et al., 2020). Gacha is one of the variations in monetization that game developers use to get players to get features in the game. ...
Gacha system is a game from Japan. The popularity of mobile games with a freemium (F2P) business model that uses the gacha system as a game monetization tool has become a problem when viewed from the legality of transactions according to Islamic law. Purchases of virtual items in the game are referred to as microtransactions, where players use real money that is spent into virtual items or game currency as a medium of exchange for these items. The freemium strategy has an attraction for players to spend money to explore a game. Gacha is a method to get virtual items in the game, the concept of gacha is very dependent on the probability and rarity of the item. The rarer the item, the player is required to spend more money. In Japan, in 2012, gacha was banned for carrying out a misleading campaign. This study aims to analyze the validity of the microtransaction contract system for purchasing virtual items using the gacha system according to Islam. This research uses the library research method. In collecting research data, the researchers analyzed sources from previous studies related to freemium business strategies, microtransactions and the use of the gacha system, as well as the rules of Islamic law from these various transactions. The results show that transactions using the gacha system contain elements of maysir, taghrir and tadlis. Using the gacha system without doing microtransactions with real money does not fulfil the elements of maysir, taghrir and tadlis. Meanwhile, players who perform microtransactions to buy in-game items directly or without going through gacha are included in the ijarah agreement. Players can also get rewards (sell) in the form of certain items if they grind as a gift from the game developer.
... This is a business model that focuses on the provision of content or any form of product offerings freely to establish recurring purchases from subscribers of the websites or users. It majorly aims to persuade subscribers or users to continuously make payments for much advanced and perfect content from the sites (Holm & Günzel-Jensen, 2017). The business model has been employed by major music streaming companies such as Spotify with the hope of providing free services with the confidence of the users upgrading their services efficiently. ...
... Therefore, this model has deemed a sales and marketing strategy that provides access to the user of all catalogs and music genres available within the website. Later on, the user is persuaded or convinced through the free content available to upgrade by paying designated premium fees to access the product offerings within a stipulated time frame (Holm & Günzel-Jensen, 2017). The profit index of the model is channeled towards the creation of a relationship between the fees paid by the premium users concerning the free user. ...
... The difference between the new customers and the premiums paid by the high-end clients results in massive profit margins for the organization. The free user interface has been a more significant factor for the music streaming industry to attract new consumers and establishing a definite competitive advantage in the market (Holm & Günzel-Jensen, 2017). Hence, this leads to cost efficiency and effectiveness in the operation ability of the music streaming operations. ...
... (1) Implementation of free and premium strategies There is a research body on how to implement a successful freemium pricing strategy. Here, differences in product quality between free and premium versions as well as pricing for premium versions are investigated in particular (e.g., Bourreau and Lethiais 2007;Hamari et al. 2017;Holm and Günzel-Jensen 2017;Hüttel et al. 2018;Niemand et al. 2019;Runge et al. 2022). With regard to pricing, for example, Runge et al. (2022) found that both conversions and revenues increase due to promotions. ...
In light of increasing digitization and monetization, the freemium pricing model is being used more and more frequently. Against a backdrop of increasing competition and rising costs to attract new users, freemium platform providers need to know how to reduce termination rates. We analyze several influencing factors of termination rates using extensive data over a 5-year period from a freemium platform on sport and breeding horses. We find that shorter contract terms, increasing involvement, and increasing platform-specific content reduces termination rates. Furthermore, freemium providers should pay special attention to the interaction of video views and number of last logins. While both variables individually have no significant influence, the interaction effect positively affects termination rates. The higher both the number of video views and the number of last logins, the higher the termination rate. For freemium providers this finding leads to a dilemma. In short term (within a week), they do not know if a premium user has logged in for the last time and is willing to terminate. Still, this result is highly relevant for freemium providers. They should use our results to analyze last logins and video views ex post. In this way, they can learn about their customers’ behavior and find out how to reduce the termination rate in the future.
... Based on Ministry of tourism and economy creative, creative industry is divided into 17 creative economic subsector one of them is architecture and interior design sector. Primarily, design was a way of thinking that was divided into two main processes: (1) the study process, which included statement of the problem, exploration and analysis, and conclusions; and (2) the decision-making process, which is the final stage of the design process and is a combination of objective and subjective elements such as visual appeal, market trends, and user factors. Almost all aspects of our daily life intersect with design and creativity, and design is no longer an exclusive thing; it's a part of lifestyle. ...
Nowadays, almost all aspects of our daily life intersect with design and creativity, and design is no longer an exclusive thing; it’s a part of lifestyle. People become aware about interior design. Ever since Covid-19 pandemic, people mostly spend their time at home. It cause increasing furniture demand. From the data shows that the number of construction company in Indonesia is growing every year. This create opportunities and potential for business market. Thudio is a new innovation for designers to make their work easier. It connects a lot of stakeholders, from designers and architects to customers and suppliers, to help consumer deliver the best result for interior design projects. Thudio is a variation on the word “studio,” which refers to a place where designers, artists, and innovators work, collaborate, and innovate. Thudio aspires to become a venue for innovation and collaboration in the home living market. With the marketing activities that have been implemented, Thudio should develop so that the consumer subscription target can be achieved. The research strategy data collection method chosen for this research is questionnaires which is going to be administered through electronic and online questionnaires. This will be considered as the effective, and efficient way in capturing the information. Research with surveys by distributing questionnaires to interior designers that aim at describing and explaining business issues and seeks the answers by the user of the quantitative data. Research limitation; questioner only for Interior designer who works freelance, in-house, and as a student. The proposed questioner is designed to determine customer awareness of the Thudio brand and the services it provides. Also, to investigate whether factors influence users’ willingness to subscribe to a service. The framework used in this research to analyse the result using 4V (Value proportion, value creation, value capture, and value delivery) to asses the freemium business strategy. As proposed solution to be implemented, researcher using business model canvas (BMC). Based on the analysis, Thudio must create marketing initiatives to increase the number of Thudio service consumers. Furthermore, the aspect that makes individuals want to subscribe to a service is differentiated distribution, which is influenced by the benefits supplied and the service’s goal. As a result, Thudio employs a freemium strategy in order to increase the number of Thudio service subscriptions.
... A SaaS provider seeks to persuade the freemium version users to convert into paying ones by offering them more advanced versions of the application (Holm & Günzel-Jensen, 2017). This demand can be done through, for example, making the application a bit inconvenient to use without a payment (Hamari, Hanner & Koivisto 2020). ...
This article studies what are the characteristics of a B2B SaaS free-mium firm. Freemium in a B2B setting is an under-explored phenomenon whereas B2C SaaS freemium has been studied extensively. On the consumer side freemium has played a big role but freemium has only recently started to enter the B2B environment. Traditional, sales-led B2B SaaS companies have increasingly begun to turn to freemium and hence, it is important to understand how do they go about it. The empirical qualitative research was conducted as a case study and the data was gathered by interviewing European B2B SaaS freemium businesses. The data was analysed using qualitative thematic analysis and the coding approach used for identifying the concepts was open coding and axial coding. From the data three main success factor themes emerged that were evident in the B2B environment: customer success, internal enablers and external enablers.
... First, user needs and goals do not necessarily align with the financial interests of the companies, which offer the music streaming service (e.g., Morris & Powers, 2015;Prey, 2018;Sun, 2016; see also Karakayali et al., 2018). While users may desire unlimited access to the 'celestial jukebox', for instance, the companies may profit from restricting certain features to paying customers (so-called 'freemium model', see, e.g., Holm & Günzel-Jensen, 2017;Voigt et al., 2017). Second, and maybe even more importantly in the present context, the music recommender systems do not always produce the results users are hoping for. ...
The personalization of digital environments is becoming ubiquitous due to the rise of AI-based algorithms and recommender systems. Arguably, this technological development has far-reaching consequences for individuals and societies alike. In this article, we propose a psychological model of the effects of personalization in digital environments, which connects personalization with motivational tendencies, psychological needs, and well-being. Based on the model, we review studies from three areas of application—news feeds and websites, music streaming, and online dating—to explain both the positive and the negative effects of personalization on individuals. We conclude that personalization can lead to desirable outcomes such as reducing choice overload. However, personalized digital environments without transparency and without the option for users to play an active role in the personalization process potentially pose a danger to human well-being. Design recommendations as well as avenues for future research that follow from these conclusions are being discussed.
... The differentiation between Facebook and some other services that use the Freemium Model (such as Twitter) is that they supplement the Freemium model with multiple monetization models. It is evident by Facebook's Virtual Currency, allowing people to purchase Apps and Virtual Goods that people can buy in lots of Facebook Apps (Holm & Günzel-Jensen, 2017). ...
The rapid expansion in globalization, changing economic and political conditions, health crisis, advancement in technologies, and customer demand shift have highlighted the business model concept’s growing importance in every business life walk. Despite the agreement on the business model’s role in innovation and firm success, this concept is unnoticed in the legal industry. The growing digitalization has disrupted the legal industry business model by enabling various cooperation, collaboration, value proposition, and value capture mechanism. Digitalization has innovated the legal business model and engaged them in the mundane adaptation in response to external environment changes. However, literature trends reveal that innovation in the legal business model is overlooked by academia. This study applied a case study method to highlight business model innovation in legal firms in the proposed framework of the business model navigator/magic triangle and business model canvas. We also took the market and industry trends and COVID-19 into consideration in the legal business landscape. This study proposed a digital business model and innovation operating model for the legal firms based on the identified fundamental pillars of digital business model components. This study expands the literature on digitalization and business model innovation by focusing on an ignored industry with substantial disruptive potential.
This article studies what are the characteristics of a B2B SaaS freemium firm. Freemium in a B2B setting is an under-explored phenomenon whereas B2C SaaS freemium has been studied extensively. On the consumer side freemium has played a big role but freemium has only recently started to enter the B2B environment. Traditional, sales-led B2B SaaS companies have increasingly begun to turn to freemium and hence, it is important to understand how do they go about it. The empirical qualitative research was conducted as a case study and the data was gathered by interviewing European B2B SaaS freemium businesses. The data was analysed using qualitative thematic analysis and the coding approach used for identifying the concepts was open coding and axial coding. From the data three main success factor themes emerged that were evident in the B2B environment: customer success, internal enablers and external enablers.KeywordsSaaSSoftware-as-a-ServiceFreemium
Les labels de musique sont des organisations à l’interface entre le musicien et le public, généralement en charge de la production phonographique. Depuis l’arrivée des technologies numériques telles que le format mp3 et le réseau de partage Internet, ils ont dû s’adapter à plusieurs éléments : canaux de distribution plus variés, concurrents dématérialisés, clients demandeurs de gratuité, coopérations plus éphémères. En particulier, les plateformes de streaming comme Spotify amènent un changement qui peut être qualifié d’innovation stratégique. Une innovation stratégique est un changement si fort qu’elle bouscule toutes les valeurs précédemment établies dans le secteur (renouvellement des valeurs attachées au produit, des valeurs attachées à la relation client et des relations de pouvoir). Toutefois, face à ce bouleversement, les réactions sont variées. Si la plupart des acteurs adoptent et diffusent cette innovation stratégique en facilitant son implémentation, on constate qu’il existe des labels de musique qui répondent à ce changement de manière plus ambigüe. On constate notamment que certains refusent de diffuser leurs groupes sur les plateformes de streaming et les agrégateurs digitaux, décision qui contraste avec la puissance théorique d’une innovation stratégique. Cette recherche vise donc à décrire ces comportements et leurs justifications associées. On s’interroge ainsi : Comment certaines organisations justifient-elles leur réponse stratégique allant à l’encontre d’un changement sectoriel puissant ? En adoptant un cadre théorique réunissant les concepts de réponse stratégique et de justification, il en résulte une double lecture organisationnelle et sociologique des changements. L’analyse des réponses stratégiques à une innovation stratégique permet d’observer les changements sectoriels et leurs facteurs d’influence de manière longitudinale tandis que les mécanismes de justification issus de la sociologie de la critique permettent de caractériser les décisions des individus au cœur de ces organisations. Cette dernière théorie est d’autant plus pertinente que les labels de musique sans streaming rencontrés sont majoritairement gérés par des personnes seules. La recherche de terrain a permis de récolter un matériau riche et varié : des entretiens qualitatifs semi-directifs auprès de gérants et de membres de labels n’ayant pas de lien avec les plateformes de streaming ainsi qu’une analyse bibliothécaire quantitative sur des fanzines de musique. Les retranscriptions des discours ont fait l’objet d’une analyse automatisée avec Alceste permettant d’identifier les situations, valeurs, actions et décisions les plus significatives et fréquentes chez les répondants. Puis une analyse manuelle a permis d’affiner les justifications individuelles à ces comportements récurrents.Les résultats confirment l’existence de comportements de refus d’adoption du streaming, c’est-à-dire de réponses négatives à l’innovation stratégique. La motivation négative à l’adoption semble être la source première de ce refus. On constate chez certains répondants que cette motivation négative est assortie d’une capacité négative, indiquant l’impossibilité d’adopter cette innovation. Concernant les justifications et leurs principes associés, elles apparaissent particulièrement variées. Il faut cependant noter le trait commun à la majorité des répondants d’indifférence de la banalité.
Business models are fundamentally linked with technological innovation, yet the business model construct is essentially separable from technology. We define the business model as a system that solves the problem of identifying who is (or are) the customer(s), engaging with their needs, delivering satisfaction, and monetizing the value. The framework depicts the business model system as a model containing cause and effect relationships, and it provides a basis for classification. We formulate the business model relationship with technology in a two-way manner. First, business models mediate the link between technology and firm performance. Secondly, developing the right technology is a matter of a business model decision regarding openness and user engagement. We suggest research questions both for technology management and innovation, as well as strategy.
The current literature on business models lies mainly in the literature on strategy and competitive advantage and focuses on their role as descriptors of actual phenomenon, often by reference to taxonomic categories. In this essay we explore how business models can be seen as a set of cognitive configurations that can be manipulable in the minds of managers (and academics). By proposing a typology of business models, that emphasises the connecting of traditional value chain descriptors with how customers are identified and satisfied, and how the firm monetizes its value, we explore how business model configurations can extend current work on cognitive categorization and open up new possibilities for organisation research.
A strong business model is the bedrock to business success. But all too often we fail to adapt, clinging to outdated models that are no longer delivering the results we need.
The brains behind The Business Model Navigator have discovered that just 55 business models are responsible for 90% of the world's most successful businesses. These 55 models – from the Add-On model used by Ryanair to the Subscription model used by Spotify – provide the blueprints you need to revolutionise your business and drive powerful change.
The literature on open innovation portrays open business models as a contemporary and extremely useful tool, which can be used by companies to create and capture value in collaboration with external partners. This paper takes the discussion a step further by examining the effect of opening business models in the newspaper industry. Based on interviews with key informants from the two largest media groups in Denmark, together with archival data from 2002 to 2011, we show how the internet and related technology developments have disrupted the long-standing successful business model of the industry. Our findings suggest that a more nuanced view and balanced understanding of the term ‘openness’ as regards business models is needed, since open business models may have other manifestations and implications for business model viability than have been reported in the literature so far.
In this paper, we explore the economics of free under perpetual licensing. In particular, we focus on two emerging software business models that involve a free component: feature-limited freemium (FLF) and uniform seeding (S). Under FLF, the firm offers the basic software version for free, while charging for premium features. Under S, the firm gives away for free the full product to a percentage of the addressable market uniformly across consumer types. We benchmark their performance against a conventional business model under which software is sold as a bundle (labeled as 'charge-for-everything' or CE) without free offers. In the context of consumer bounded rationality and information asymmetry, we develop a unified two-period consumer valuation learning framework that accounts for both word-of-mouth (WOM) effects and experience-based learning, and use it to compare and contrast the three business models. Under both constant and dynamic pricing, for moderate strength of WOM signals, we derive the equilibria for each model and identify optimality regions. In particular, S is optimal when consumers significantly underestimate the value of functionality and cross-module synergies are weak. When either cross-module synergies are stronger or initial priors are higher, the firm decides between CE and FLF. Furthermore, we identify nontrivial switching dynamics from one optimality region to another depending on the initial consumer beliefs about the value of the embedded functionality. For example, there are regions where, ceteris paribus, FLF is optimal when the prior on premium functionality is either relatively low or high, but not in between. We also demonstrate the robustness of our findings with respect to various parameterizations of cross-module synergies, strength of WOM effects, and number of periods. We find that stronger WOM effects or more periods lead to an expansion of the seeding optimality region in parallel with a decrease in the seeding ratio. Moreover, under CE and dynamic pricing, second period price may be decreasing in the initial consumer valuation beliefs when WOM effects are strong and the prior is relatively low. However, this is not the case under weak WOM effects. We also discuss regions where price skimming and penetration pricing are optimal. Our results provide key managerial insights that are useful to firms in their business model search and implementation.
Whenever a business enterprise is established, it either explicitly or implicitly employs a particular business model that describes the design or architecture of the value creation, delivery, and capture mechanisms it employs. The essence of a business model is in defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit. It thus reflects management's hypothesis about what customers want, how they want it, and how the enterprise can organize to best meet those needs, get paid for doing so, and make a profit. The purpose of this article is to understand the significance of business models and explore their connections with business strategy, innovation management, and economic theory.
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