A new model of business has been sweeping the nation and achieving overwhelming success. That model is called Freemium. How does it work? Well, to start, give people stuff for free. From television streaming giant Hulu, to leaders in the gaming industry like Riot, companies have realized the genius behind the model. We are not talking about giving out free samples or trials either. In the Freemium model you are offering high quality content for free and without a requirement to ever spend money if the users don’t choose to. The secret? By offering a high quality product or service for free, they pull in a massive number of users. With that user base, they can then sell supplementary or premium services to a captivated audience. The freemium model survives off a small portion of paying users, often 1% or less.
When you have millions of users, however, this otherwise seemingly trivial percentage can equate to a lot of earnings. So why does Freemium matter to you as an early stage entrepreneur?
To preface this discussion I will say that not all businesses are good fits for the Freemium model. The model works best in industries with frequent return users, such as with a subscription or a free-to-play layout (cite).
If your idea or project could work within that realm, however, and you have enough capital to push through the initial ramping phase, the benefits are great. One of the key challenges for many founders is how to get customers to realize the value they can bring to them. In other words, there challenge is building client trust. Lets use an example of a website that wants to sell vitamins, supplements and customized work-out plans. If you don’t have a reputation, public endorsements or a verified way of building traffic, you’re in trouble. You might have a great service and products but people just don’t have the confidence in your brand. Enter the Freemium model. You start by creating value on the FRONT end. For this example, start on your website by developing a comprehensive discussion of the issues around the items you are selling, including unique or differentiating content, such as a strong infusion of scholarly articles or something comparable. Build a healthy array of forums stocked with quality content and put in useful features that entice customers to return, such as a BMI calculator, a calorie counter or a custom in-house “health index”. At this point you are ready for a launch. When customers come to your website, they gain free access to your vast array of content and may return continually to get the latest nutrition/workout updates or use your websites useful features. From here, your audience will see your value and a subset, even if it is small, will purchase product from you. Lets compare this model to alternatives for the same case. One alternative would be to create a subscription model wherein users can pay a monthly fee to access your premium content and then perhaps gain discounts to certain products. While this provides you with a more consistent stream of cash, it dramatically limits your user base and makes your growth exponentially harder because of that. You could also alternatively attempt to save time and money on the free content and just sell your products and services. The problem there is again consumer trust and a lack of a strong inbound funnel of users.
So give it a thought for your next business idea. Instead of trying to focus on the immediate earnings you could make off potential clients, think long-term. Build a relationship and build trust.