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Freemium 101: Definitions

Submitted by on June 29, 2012 – 9:30 am2 Comments
K Meetup 1 150x150 Freemium 101: Definitions

Freemium as a Business Model

Welcome to Freemium SF Bay Area’s Blog! Our goal is to bring you in-depth analysis, information, and real-life stories about the Freemium business model in order to help business owners and entrepreneurs navigate the tricky waters of this method of monetization. We welcome your comments and feedback, and we welcome your membership in our Meetup Community.

Part I of this series explores various terms found within the basic Freemium/monetization conversation.

What is Freemium?

The name itself is a combination from the word “FREE” and “PREMIUM.” It was created in 2006 by a reader of Fred Wilson who described the business model in his blog  like this:

“Give your service away for free, possibly ad-supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.”

He asked his readers for a name for this kind of business model and eventually  Jarid Lukin of the Flatiron portfolio company Alacra came up with the term “Freemium.”

Definition: Free, Paid, Freemium, Premium, Free Trial

In the online world, there are many services that give their products away for free.

If they offer no other version of a product, that product (or service) is considered FREE and not Freemium. The user has access to everything; there are no hidden or otherwise unavailable features. All users are getting the same product.

A PAID version is similar to a FREE version in that there is only one version: whether you pay for a service or app, or whether you use if for free, what you see is what you get. There are no other features or add-ons available.

A FREEMIUM version of a product is when a user has access to its foundational features, e.g. its basic features, but if he wants the “shinier” version he needs to pay. The Freemium Model is always a kind of limited version — limited in terms of:

  • Storage Space (Dropbox, Evernote, Flickr)
  • Calls to Landlines (Skype)
  • Accounts (Hootsuite)
  • User Information (LinkedIn, Xing)
  • Data Volume
  • Searches
  • Ongoing Services
  • Support
  • Add-Ons
  • And many more.

Any products or services can have the ability to be upgraded to a PREMIUM version, if any types of add-ons like those listed above are withheld from a FREE user. By paying, users have an “improved” version,  that has in-app purchases, meaning it is better and has more of everything: Features, storage, tweaks, information, support, add-ons, etc.

A recently introduced term is PAYMIUM, which means basically the same as PAID, but is prevalent mostly in the Mobile App space via In-App-Purchases.

A FREE TRIAL means that users can get access to the Premium Version for a period of time. At the end of that specific time if a user chooses not to buy the Premium version and the product is a Freemium one, he would be downgraded,  — probably back to the Freemium Version, but possibly downgraded so as to lose access to the program/service/app altogether.

 

mavenlink the price of free Freemium 101: Definitions
Price of Free

 

Want to learn more about the Freemium Business Model for your business?

If you are in the Bay Area, join our monthly Freemium SF Bay Area Meetup for a chance to hear world-class speakers and make networking connections! If you can’t make it, you can always catch the summary, video and presentations.

2 Comments »

  • Charlotte Monte says:

    I love the graphics and “Freemium for Dummies” approach. Super succint and educational.Thank you!

  • Paymium does not mean basically the same as paid.

    A freemium app offers the core game for free but allows players to spend hundreds or thousands of dollars on upgrades, status items, progression and so on.

    A paymium app offers the core game for an upfront payment, but also allows players to spend hundreds or thousands of dollars on upgrades.

    In the world of mobile games, the maximum revenue you can charge for a paid app is $5-$10, while a paymium user could easily spend $100. They are very different models.

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