Freemium Business Model: A door to paradise or a road to hell? (Part I)

Nowadays everyone talks about the freemium business model and its miracle in building a business out of nothing. Specially the ones who have never run a business!

Freemium is a word coined by Jarid Lukin combining the Free and Premium concepts.

May the Tom Hayes definition in the Jump Point be a good point to start:

Freemium is a pricing strategy by which a product or service is provided for free and the premium is charged for complementary products, services and features.

It looks like a bright idea:

  • Give the customers a small free mailbox and charge her for more storage.
  • Offer the client a free cloud storage service and charge her for more space and special backup plans.
  • Give permission to the reader to read 5 (or 15) articles per month and charge her for more (Current HBR Plan).
  • Visit the theme park free of charge but you have to pay for using the devices.
  • Read the ebook online free of charge but pay some premium if you like to have offline access to it.

Everything seems logical and rational. Except the fact that most of the freemium business owners are regularly complaining about free riders and the paid customers who are bearing the load of these for-ever-will-ride-for-free customers!

In my future articles, I would discuss this business model in more details. Using the well-known cases and also referring to my personal experience, I would try to draw a more clear and realistic map of the freemium industry.