Everything seems simple and reasonable:

You just offer something for free and build up a customer base and then offer them other features or other products based on a premium.

Sure it can be a successful business model as we see many giants of the digital age started with the same idea or still stick to it. However, if you consider so many failed cases where never had a chance to be heard or featured in the media, you may change your idea.

It has always been said that evolution is a game which clears traces of its failure and promotes its successful species. It’s not only the case with natural and biological evolution. The same holds true for the evolution of businesses. So, we should be careful not to be deceived by the successful species and always have a look at the vast amount of failures which may be destined to be one of them.

Penny gap is one of the cognitive errors of our mind which dramatically influences our price perception. Although the large gap between free and cheap-but-not-free products was under study for decades, penny gap is a very nice name for the concept coined by Josh Kopelman.

The gap between a free product and a penny product is wider than it appears. It’s a serious psychological hurdle on the path of converting a got-used-to-pay-nothing customer to a paying one, and this is a bitter fact ignored by many of the entrepreneurs and business owners.

It’s clear that there may be technics and strategies to convert free customers to paying customers, however, it’s not as easy as it seems.

Still you may say I do not expect to get a penny from most of my free customers, and I accept the fact that they are not going to pay anything. But they would be my promoters and this kind of promotion is much cheaper than traditional advertising approaches. As Sarah Gilbert notes:

Yes. The Idea of Sarah Gilbert is logical but may not be practical as there are many other factors which we have to take into consideration.

My personal experience confirms Barry Barters’s statement: Free customers have more time, cost more resources and make more complaints. Although still you may prefer to use freemium business model, it’s better to understand that costs for free customers are largely underestimated as most of the books and articles are written by people who had not practical experience in running a freemium business model.

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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.

The post Freemium Business Model: A door to paradise or a road to hell? (Part I) appeared first on webmindset.

Still there are many books and business scholars who consider the subscription as a revenue model and not a business model, although John Warrillow’s book is not one of them.

Considering subscription as a revenue model means you can design your core product and even most of the internal functions of your business without taking the effect of the subscription model to your core idea.

John Warrillow is one of the rare cases who considers the subscription as a core component of the identity of a business. He even coined his own term for the subscription-based business models: Businesses with Automatic Customers!

The first part of his book has an exciting title: Subscribers are better than customers.

The title has an implicit yet clear message: subscribers are not a type of customer; they are something different and even better.

Although most books consider the subscription business model as a pure and non-dividable business model, Warrillow divides the subscription business model into nine distinct categories:

• The Membership Website Model
• The All-You-Can-Eat Library Model
• The Private Club Model
• The Front-of-the-Line Model
• The Consumables Model
• The Surprise Box Model
• The Simplifier Model
• The Network Model
• The Peace-of-Mind Model

It’s not so easy to find any other text visualizing the structure of the subscription economy better than The Automatic Customer.

A highly recommended book for any startup and should be filed under No Excuse for anyone who is thinking about starting an online business.

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