Thursday, March 7, 2019

Is freeium technology a good business model for tech companies?

I am a strategy consultant who has worked with technology companies considering the freemium model.

While there have been some notable successes with the freemium model, most companies that implement it do not succeed because only a very small percentage of users ever become paid customers, and the gap between free and paid customers become too great.  When this gap occurs, the company can't recoup its recurring expenses.

There are 3 better alternatives:

1. The best is the free trial model, where the company offers a free trial of their complete version and, after a certain amount of time, the user must leave or convert to a paid customer.  

2. The application is free, but there are one-time purchases.  This model works very well for mobile games.  This model is different than freemium because it does not depend on a small subset of users becoming ongoing subscribers.  Instead, because purchases are one-off, a higher percentage of customers will buy on occasion.

3. The application is free, but consulting / services are offered for a fee.  In this case, since consulting / services command a higher fee than subscription charges, companies that elect this model have a much better chance to cover expenses, and generate a profit.

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