News>2010.04.25

 

【Column】Is "Freemium" marketing tactic or business model?

 

"Freemium", the term as Chris Anderson elaborated in his book of "Free", is a business form that mainly Internet service company raises awareness and reputation by providing "Free" services, then try to monetize reputation into revenue by providing premium services to part of free users. 

It is normally called as a business model though, it often rather be a part of marketing tactics in a sense that company increase user base by providing free service. Then a question is that is "Freemium" marketing tactic or business model?

"Freemium" as business model and as marketing tactic are both often mixed up together and categorized in a same way. Indeed they are both fundamentally different from each other.  

The answer depends on how a firm uses "Free" service in its business. It means that one provides free service for raising awareness only or for monetizing "Free" service in different way as a part of business model. Let me illustrate examples.

In the case of Evernote, which creates software that serves as a memory aid, or external brain, it gives away its product for free on a variety of platforms and charges a $5 per month subscription to the heavy users who want the most features. As a result, it uses "Free" service in "Freemium" as a marketing tactic to raise user base. 

As another case, social networking site of Ning recently announced the shift from free service to all premium service by shutting down all its free offering. In this case, Ning used to position "Freemium" as temporary marketing service to raise awareness. What it does is to change from marketing tactic of "Freemium" into premium business.

On the contrary, in the case of Google earth and Typepad, blog service, they actively use "Free" service for not only to raise awareness but also to be complimented by advertising revenue. They do not just provide "Free" service but provide "Free" service as a part of generating revenue. They use "Freemium" as business model combined by advertising service. 

"Freemium", although the term seems to be business model, means only a state that a firm use "Free" services either marketing tactic or business model.