Freemium

To refresh your memory - or introduce the concept - I am going to explain what Freemium is and it’s importance. Then we will take a look at a simple example that will help you understand the concept better.

Definition

Freemium is a model consisting of offering free basic services with the option of enjoying complimentary services, without limitations, or at a higher level through a paid subscription (premium). It is a way to bring the clients closer to our product with the aim of relating to it and trying out the basic functionalities. For added functionality, the user has to pay.

Example

It is a business model that is used in video games such as Candy Crush, Clash Royale or Clash of Clans, among many others. The player is allowed to play the game for free under a number of conditions or restrictions. If the player wants to advance faster or wants to have more objects or functionalities within the game, they would have to pay. What does this strategy allow? Firstly, it allows the player to try the game without any financial commitment, get used to the game and enjoy it. This way, if the player wants to continue enjoying the game with additional packages they will have to pay. It is a very good strategy in the case of video games because the incremental cost at the operational level of having one more player is residual since it is a very scalable business. This means they can afford to have 100 new players because if only one converts, it justifies the expense of maintaining the servers for the remaining 99.  

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