The Freemium Model - A More In-Depth Look

The word "Freemium"  comes from combining the words "Free" and "Premium". Its is primarily used to describe products or services which reach a large audience by giving users a free but limited service, and advertises premium or better features for an additional fee. The costs of providing the free service to most users is often paid for by the profit from premium users. An example of a service that uses this model is Dropbox, which offers users 2GB of cloud storage by just signing up. Once the user uses up this 2GB, they will be offered to upgrade to a premium account with 1TB of storage for 9.99 USD a month or 99USD a year.

Dropbox also offers options for corporations to buy cloud storage space

The Freemium model should not be confused with free trials, which allow users full access to a service for a limited amount of time. There are also other business models which allow users to access content or services for free, such as ad-supported content where advertisers pay the content creator, in return for targeting their advertisements towards the user. Spotify, the online music streaming service, is an example of something that is a combination of the two models, in the sense that on desktop it offers pretty much the same features for free users as well as premium users, except free users get bombarded with ads constantly. There are also some limitations on playing music while offline while using Spotify, but the differences between premium users and free users is most evident on mobile devices, where free users don't have the option to choose the songs to play - only which playlist, which is automatically put on shuffle. 

The way Freemium works for companies is by casting a wide net of potential buyers, offering a selected number of features to entice them into paying for more, better features. Creators need to find the right balance in this formula - keep things too limited, and the users won't feel like they benefit enough to want to upgrade; give out too many good features, and users won't be bothered to upgrade. This is why some products end up revising their freemium schemes after a few months, changing it to a limited free trial period or cutting back on the features offered in the free versions. 

References:

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Kumar, V. (2016). Making “Freemium” Work. [online] Harvard Business Review. Available at: https://hbr.org/2014/05/making-freemium-work [Accessed 17 Dec. 2016].

Patel, S. (2016). Forbes Welcome. [online] Forbes.com. Available at: http://www.forbes.com/sites/sujanpatel/2015/04/29/7-examples-of-freemium-products-done-right/3/#24f2336b4765 [Accessed 17 Dec. 2016].

Freemium.org. (2016). What is freemium. [online] Available at: http://www.freemium.org/what-is-freemium-2/ [Accessed 17 Dec. 2016].