A response to the “Freemium Model” video by Chris Anderson
“The best model is a mix of paid and free content.”
-Alan Murray, Five Tips on charging for content
“What are some well known sites that you know of that people will most likely switch to ‘Free’ to ‘Premium’?” If you have thought of them, what is the one site you were to consider switching to ‘Premium’?
For me, it will be Netflix. Netflix is a platform that allows users to view TV shows and Movies globally. Ranging from Hollywood to Korean to Local Dramas, to entertainment and variety shows, there is something for everyone.
Last year, when Netflix was already trending among my peers, I still have not owned a Netflix account. As a person that is not so hyped up over trends, I tend to ignore the deal about not following them. I have thoughts like “What does Netflix have to offer?” and “How much do I have to pay if I were to access it?” Out of curiosity, I searched up the Netflix official website and found out it offered a 30-day free trial.
The word ‘Free’ to me initially seemed dubious as I know that no usage of service is indeed free, but I still tried the Netflix service anyway. After that, there was no turning back. I got hooked to some shows like the famous Brooklyn Nine Nine series that currently air five seasons. I wanted to keep on watching that series so bad.. that I decided to switch to premium. For just SGD10.98/month, I can get to watch not just Brooklyn Nine Nine, but other shows or even new films Netflix produce in the months to come. Other examples used and popular by many that offer freemium services are Club Penguin and LinkedIn.
In the talk that Chris Anderson explained in the video, he mentioned that service or platform providers which target customers knows what will likely to entice them to purchase the premium services, and also discover the trends they are currently into so as to prompt them to try out such services. (Although the video was published 10 years ago, I still find it relevant in today’s society.)
Chris Anderson mentioned 5 Things eBusinesses know about consumers:
- They will pay to save time
- They will pay to lower risk
- They will pay for things they love
- They will pay for status
- They will pay if you make them
I agree to what he mentioned, especially point number 3. If someone really likes to spend time the things they love, chances are is that they will spend a little bit more money just to enjoy that activity and added convenience. For example, some services will mention that if you were to purchase the premium package, there’ll be no more ads. One of the reasons customers will pay more is that the price difference is not worth the hassle between competitors from the same market. For example, cable TV that charges at a higher premium price. However, in my opinion if there were some customers out there that are able to anticipate the psychological effect, supported by the term known as loss aversion of “Freemium” plays on them for example, they may become addicted to the service and continuously purchasing it for long term.
In reference to the citation which I quoted at the start of this blogpost, I agree to a certain extent. However, the “Freemium” model will only be effective if people really know what they love, and would trade money for enjoyment and gratification. In this society we live in today, it is sometimes difficult to differentiate between liking something because you really like it, and liking something because it is trending and you want to be part of it.
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Some currently trendy products using the freemium model i could think of is spotify, dating apps like Tinder & food guides/discounts apps.
Spotify, yes, it does provide free music. However, the free variant in my experience consumes more data(which is precious) as well as the annoying advertisment. I pay for spotify premium as it allows me in control of my music experience and to avoid the annoying advertisment.
Similarly to spotify, dating apps like Tinder have a high supporter of premnium users, especially from my point of view, male users.
The limit of likes allocated per user may annoy some users to just subcribe for premnium. However, apps such as this only serve a temperory purpose as once a user gets a satisfactory match or bored of it, he/she might unsubscribe.
Overall, i believe that the freemium model is an effective model in attracting new users to try out. However, in order to keep subscribers to continue their premnium, new products or functions is necessary .
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Thank you for the comment Zack! Yes I also pay for Spotify premium to avoid those advertisements and to play out the songs I want in order. I also agree on your point regarding some users getting bored and unsubscribing to the Tinder service. I was also thinking some people just want to try out new things that may be in trend but with no other intention of continuation. I’ll keep in mind that new features are needed to be invented to motivate and entice customers.
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For me, it would be spotify. I didnt know about spotify until my friends recommended to me. Cos I was telling them that I have to download new songs everytime in my phone. I realise that I need to switch to premium if I want to listen to my songs without any interruption of advertisements. I wanted to experience how it is like, so I tried the free trial premium. After the free trial, I decided to switch to premium. The reason I switch to premium is because it is convenient for me. It also has various benefits.
I think it is good to continuously seek people’s opinions and seek what people really want or would enjoy as different individual has different opinions. Knowing that, will help to make freemium be effective, as it helps the app create more features that can attract users.
Most importantly, I think that when an app is convenient for people and able to benefit people and their interests in the long run, they will continue using premium.
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Thank you very much for the comment Christine! I agree that switching from the free to premium Spotify service will bring added convenience, and also worth the monthly payment to the subscription. Yes! In regards to seeking customer’s opinions, I was wondering it would be great for companies that are currently selling similar services to conduct further Market Research to further entice them. This way, they are likely to become loyal customers in the long term.
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I feel this was well written, detailed research has been done to help support the points mentioned above. Using Netflix as an example is relatable to people since it’s the in trend thing going on right now. Of course there are other apps which make use of freemium model such as Spotify, Amazon Prime or even Live Up (for online shopping on Lazada). This helps to entice people into trying out a new product which is a good method. However, it depends how they were to go about in trying to retain their current subscribers or users.
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Thank you so much for the comment! I appreciate it. I certainly agree with the point you mentioned about retaining subscribers and users. In my opinion, I think that converting customers from assessing ‘free’ to ‘premium’ services is one goal, but retaining them is another goal, which may possess an issue. eBusinesses that adopt the freemium model must be able to differentiate their method of retaining customers in order not to be copied by other eBusinesses easily.
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I totally agree that the freemium business model has become a dominant business model in apps and even in internet startups. The free features are indeed a great marketing tool which enables the capture of a larger target market (ps who doesn’t love free stuff!). With users understanding their needs / wants from these freemium applications, they will then be able to make an informed choice on whether to spend a little more. For instance, as I’m keen to pursue the area of HR, a LinkedIn premium would definitely be useful as it will enable me to have more access to other recruitment features and enjoy other great benefits.
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Hey thanks for the comment I appreciate it!! Yes the freemium model has indeed become a popular method in ebusinesses these days. I also understand that customers like to try out new things because of its novelty, and we’re curious by nature I guess. Yes I agree to your point that when consumers know what they really want, they will purchase the premium service and likely use it for long term. For linkedin in my opinion, the premium feature is expensive to me at $30 per month. Reason being not fully utilising the application, although I update my profile from time to time. I realise I do not actively seek for connections. If you are a heavy user of Linkedin, the premium feature would be very beneficial!
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An interesting insight on the Freemium model! But do you think that there are any downsides to this business model? What do you think are the challenges that start ups will face if they adapt a freemium model?
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Thank you very much for the comment! In regards to your question on downsides, yes there are in my opinion. A few factors include no full guarantee of the success for the implementation of the freemium model, the marketing strategy by the company not properly aligning to the customers’ needs resulting to failure of the business, as well as the customers’ perception that the benefits and extra features offered for the ‘premium’ service are not worth the money to be paid for. Based on the second factor that I mentioned which was the company’s marketing strategy, if that component could not be fulfilled and is not strong enough to win over customers to switch from the ‘free’ to ‘premium’ service, it would be a complete waste of resources, time and effort to even come up with a freemium model in the first place.
I would like to bring this factor and explanation over to your next question which is the challenges start ups will face. Yes, that point is linked to being one of the challenges faced. I understand that in today’s society and market, not all startups are successful. According to a Singapore Business Review article written last year, NUS has reported that 52.7% of the startups in Singapore alone have the ability to survive harsh businesses for more than 5 years. Through this statement, I would conclude that the remaining 47.3% of the startups have failed within those 5 years. Relating back to your question, another challenge that startups will face if they adapt a freemium model will be the lack of resources the particular startup has. Startups are not very established as a whole and also financially unable to provide much in the company in the initial stage. They are also unstable, questioning its ability whether they are able to survive in the competitive market and industry long term. Relating back to the article, Singapore does not have dynamic innovation hubs such as the Silicon Valley and Israel. When insufficient resources is an issue, it is also hence difficult and risky for these Startups to adapt a freemium model. One more challenge faced would be the reputation the Startups have to undergo if they were to adapt a freemium model. If they are successful in the freemium model implementation, there’ll be questions like “How are the Startups going to maintain this reputation and also customer loyalty?”. And if they are not successful, “How are these Startups going to be accountable to the investors that partner with them, as well as the customers?”
One good example would be the bike sharing service that recently failed and folded in Singapore between last year and this year. Not only these companies were unable to comply with the Land Transport Authority Rules, but I believe not many customers were enticed to purchase and utilise their premium services offered, which are the unlimited rides at a given rate. They may apply to only a small group of cyclists that require the bike to work, or exercise. In summary, I think that Startups should conduct proper Market Research and consumer behaviour of those they are targeting in the market, especially if they want to venture into an overseas market before implementing anything and a freemium model. This will in turn reduce the failure rate of the Startups and increase chances of the returns of investments.
Here is the link about the stats I have mentioned: https://sbr.com.sg/economy/in-focus/singapore-doesnt-need-any-more-lousy-startups-crowding-market
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After reading this post, I made me reflect on certain things. 1) Conforming to social norms. Do we really need to follow the trends of the world or just do what we enjoying doing? 2) How business attract consumers by first letting consumers try it out & consumers get hooked & then subscribe to pay for more services. It reminds a technique which is similar called foot in the door where is a compliance tactic that aims at getting a person to agree to a large request by having them agree to a modest request first. This technique works because bond is created between the requester and the requestee. Overall this blog is written well as I gained insight on what is happening in the e business & it allows me to think critically on other matters applicable to life as well.
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Thank you for your comment! I strongly agree to both of your points stated. In my opinion, conforming to society norms is a choice. Secondly, using these norms that currently exist, businesses that wish to adapt a freemium model should create a ‘new’ social norm, something unheard nor seen of to draw in consumers. The foot in the door is a technique I have not heard before. That is a very interesting technique! It reminds me of Salespeople using similar techniques like this to create and maintain relationships between them and the customers. Thank you for the compliment!! I believe that there’s room for improvement in my future blog posts and I hope I can bring in more interesting content to you.
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I personally felt that more companies are implementing such a marketing strategy in order to entice and attract the general public to try out on their services while helping to broaden on their companies’ image and brand along the way! As many young adults including young teens are deeply interested in online streaming sites such as Netflix, which allows us to watch shows from different countries and with a free trial period of 1 month, this makes it so much more attractive in the eye of a consumer. Moreover, as their plans are considered reasonable and affordable, this helps to persuade viewers subconsciously, who might have been binge-watching on their fav shows for the past month to keep up with it in the long run by signing up for a premium account, similar to Spotify and many other online sites. I believe ‘freemium’ services would be increasing in the years ahead as it provides some form of ‘baits’ for consumers to try out on and as time goes on, consumers would naturally feel like signing up for membership in order to receive any special benefits or offers.
However, in order for companies to keep up with this current ‘trend’ for their marketing strategy and to ensure it would be able to work on a long-term basis, companies have to fully understand what are consumers sourcing for every step of the way, understanding on consumers’ behaviors and knowing what are the relevant ways to promote on their companies’ brand, image and products are important as well!
As a student who is currently majoring under Marketing, this blog post had given me some insights into digital marketing and I would like to thank you for spending time and efforts into researching such contents! Keep up with it! 🙂
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Thank you for your comment! Yes, I agree to your point mentioned that ‘freemium’ services will be on the rise in the next couple of years. However, I also believe with that, there are risks taken by the company. Reiterating my reply to Grace’s comment, if the companies are able to conduct proper market research and correctly identify consumer behaviour trends, more likely they can succeed in the ‘freemium’ model and it is definitely worth as an investment. Thank you for the compliment and I hope to bring in better content for my future blog posts!
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