The freemium business model is considered a pricing strategy. A basic product or service (usually a digital offer such as software, media, games or web services) is provided free of charge. At the same time, the customer has to pay for more advanced features. This type of revenue generation has become popular over the past decade; Thanks to companies like Pokémon Go. But how exactly do businesses turn their free products into paying customers?
Let’s take a look at these 8 examples of the “premium” model, where companies offer a free primary product with premium features available for a monthly or annual fee. There are several Advantages and disadvantages of a freemium business model But as you can see, the opposite can be true. And if this model doesn’t work for you, check out our article Types of business models with examples.
Dropbox is a file hosting service that provides cloud storage and file synchronization services. The company was founded in 2007 by Drew Houston and Arash Ferdousi, graduates of the Massachusetts Institute of Technology (MIT). The name was chosen as a portmanteau of “Box” and “Drop” as well as a reference to how users can save files on another person’s computer (similarly how you can drop a box with someone else).
Dropbox uses a freemium business model to generate revenue. Free plans allow users to use Dropbox Basic features, while payment plans include additional storage space and more advanced features. Improved features include live support or more storage.
How Dropbox used the freemium model to succeed
Dropbox is seen as the king of freemium models. The company was able to attract 100 million users in the first 4 years of launch. Although people, including Steve Jobs, saw Dropbox as more of a feature than an individual company, other cloud-based services have not been able to attract as many users as Dropbox.
One of them The disadvantage of the freemium business model To be successful at that, a company needs a large user base. Dropbox focuses on user growth using the Freemium model and now has over 700 million users. It is estimated that only 1.6 to 4.0% of its users pay any revenue to the company. However, due to the size of their user base, they are able to earn 2.1 billion.
LinkedIn is a social network for professionals; Connects individuals and employers to help them find jobs, build careers, and grow their businesses. LinkedIn provides its users with a free basic membership service that allows them to create profiles and connect with other community members through in-site messaging and other communication channels. In addition, LinkedIn offers a number of paid services related to its core platform: premium subscriptions for enhanced job search capabilities, access to premium networking groups to create and resume, and more advanced tools to source candidates through site user recruiters.
LinkedIn has three main sources of revenue: premium subscriptions, recruitment services and advertising. Paid subscriptions cost between $ 30 and $ 120 per month and provide access to job listings that are not available on the free site. Carrier services include a “View Who Views Your Profile” feature that lets users know who puts tabs on them.
How LinkedIn used the Freemium model
LinkedIn was already able to take on a popular social media business model and do something other platforms could not yet do. Linkedin successfully added a premium version of their service. There have been rumors that some platforms like Facebook will add a premium service but no current platform is serious about taking that leap.
The reason that LinkedIn was able to successfully transform this is because it has already taken on a popular concept and targeted people who would benefit financially by paying to connect with others.
Social media sites like Facebook, Instagram, and TikTok focus primarily on lifestyle, entertainment, and personal connections. While these things are important, people who use those platforms don’t primarily use apps for monetization or professional advancement.
LinkedIn has filled the void and has been able to exceed 10 billion in revenue.
Zapier is a tool for connecting apps so you can automate tasks across your app. For example, you have an app that sends emails and another that handles customer information. In that case, you can use Zapier to make sure that when a customer buys something on your website and gives their email address in the second app, the first app will be notified of the transaction to send them an email thanking them for the purchase. This saves time and effort because the two programs now communicate seamlessly without having to write each email manually or by copying and pasting all customer information into another program when someone makes a purchase through your website.
Zapier has five types of accounts: Free, Starter, Professional, Team and Company. The free plan gives you access to all the key features, such as single-step zap, transfers, limited update time, and the limited number of zap you can send. If you want more than that (unlimited zap and unlimited number of integrations at once), you have to pay between $ 20 and $ 600 a month.
Spotify is a streaming service that allows users to listen to music for free, but with ads. It has over 60 million premium customers worldwide and a total of 75 million users. Users can upgrade to a paid subscription, which removes ads from the service and enables them to listen offline.
Paid subscriptions cost 9.99 per month, including student and family plans for 4.99 and $ 14.99. There is also a premium duo option which is a discount plan for two people living together. These users keep their own accounts, passwords and playlists but pay only $ 12.99 less per month.
How Spotify used the Freemium model to succeed
91% of Spotify’s revenue comes from subscriptions and the remaining 9% comes from advertising. This is an impressive ratio for a music streaming service. One of the ways Spotify was able to achieve this was by offering personalized membership for students and families.
By creating different plans for people of different populations, the service was able to target its customers who they are and how they want to use the service.
Slack is a messaging app like Microsoft Team that lets users interact with each other. Users can create their own channels and share files in Slack. The free version of Slack has some limitations, such as over 10GB of storage or the inability to search your entire archive for past messages.
The Pro version costs $ 6.67 per user per month. It offers unlimited search capabilities, individual groups, the ability to integrate third-party apps like Google Drive or Dropbox into your workflow, 1TB of storage and other useful features not offered in the free version.
How Slack has used the freemium model
Slack has been able to succeed by offering a free premium as well as having a direct sales strategy. By targeting enterprise clients, Slack’s revenue has grown to over $ 900 million. It has also been reported that 30% of customers who use the free version of Slack become paying customers.
6. Amazon Web Services
Amazon Web Services (AWS) is a cloud computing platform that provides cloud storage, cloud computing and cloud networking services. The service is designed to help companies work together to come up with new business ideas and build their infrastructure faster. It is a highly successful freemium business model, enabling AWS users to start using its services free of charge.
Like other freemium models, the AWS freemium model gives you access to their services without paying anything in advance; However, there are limitations to what you can do with the free version of their service In order to use the advanced features or be able to store more data on their servers (which is one of their most popular payment services), you need to purchase one of their payment plans and upgrade your account.
How Amazon Web Services Used Freemium Models
In 2000, AmazonWeb Services sought to enable other stores to build their e-commerce platforms on top of Amazon. The name of the site was Merchant.com. However, the test did not work well with Amazon’s existing infrastructure.
AWS was born out of that effort. They figured out how to create an infrastructure that could empower small and medium-sized businesses. Many people do not understand the importance of AWS in the bottom line of Amazon.
AWS accounted for 59% of the company’s আগে 22.9 billion profit before interest and taxes (in 2020), although it was only 12% Amazon’s income.
7. Pokemon Go
One of the most popular examples of a freemium business model is Pokemon Go. The game quickly became a cultural event and can be downloaded for free. Once you download the app, you can play as much as you want, but there are also in-app purchases that allow for more features within the game. These include items such as pockets or incubators for boiling eggs.
The success of Pokemon Go demonstrates just how powerful this business model can be. Millions of people worldwide have downloaded it; Some estimates put the number at around 700 million downloads.
How Pokemon Go used the freemium model
While Pokemon makes most of its money from in-app purchases, it has another unique source of income. The app uses local sponsorship to generate additional revenue.
Local sponsorship is the same, but not the same as advertising. Niantic, the game’s developer, says, “The cost per visit (CPV) model of Niantic is less than the ভ .50 / daily unique visit to the sponsored place by partner partners.”
Basically, local retailers, restaurants and other stores will sponsor a location where users can catch and train their Pokemon. This is the CPV model So-called earnings Niantic ranges from $ 75 million to $ 250 million at the height of Pokemon frenzy.
By sponsoring a location, these businesses can attract more people to their locations which is expected to lead to more in-store sales. Companies like Sprint, McDonald’s, and AT&T have sponsored positions. Starbucks has managed to turn all its stores into sponsored Pokestops.
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