Spotify has been a great contender for the freemium example so far. When it was launched, it offered premium for a while for free. It was only when their customer base increased that they shifted to charging a fee for their premium subscriptions. This strategy is extremely beneficial for businesses who want to drive interest into their product and increase sales along the way.
Virtual Selling and Virality
A chef went viral for creating a video series called ‘All Things Butter.’ He later packaged these several types of butter and is now a millionaire. The idea here is that he used a combination of virtual selling, as well as the process behind the making of this butter, offered his audience a glimpse of what they could also have, created a brand out of it, and is now selling his product. Understanding the fact that people really do like to have a taste of something that they see on the internet, and then selling it is also a proven way of using the freemium model.
Wider Customer Acquisition
When you use Freemium models, they tend to be attractive to a larger consumer base. For instance, Dropbox offers a free version with limited storage but entices users to upgrade for more space or advanced features. This has helped Dropbox go from a user base of 100,000 to 4 million users (about twice the population of New Mexico) in just 15 months of its launch.
Reduced Costs
By offering a free version of your product, you can leverage word of mouth and viral marketing techniques to achieve your goals. Slack, for example, initially gained popularity through its freemium model, allowing teams to use its communication platform for free and then converting organizations to paid plans as they grew. What this does is create value for your product while free, and then once that is noticed by people, they can pay for their usage.
Upselling and Monetization
Freemium models provide opportunities for upselling premium features to users who find value in the basic service. For example, LinkedIn offers a free version that allows users to connect and build a network, while its premium plans provide additional features such as InMail messaging and enhanced search capabilities. The idea here is the same, you are a well-settled brand and now you can ask people to invest that same trust in your product for just a little more money.
Flexible Pricing Strategy
Companies can adjust their freemium offerings and premium pricing based on market feedback and competitive dynamics. This flexibility can be seen with apps like Spotify, which initially offered a free, ad-supported version to attract users and later introduced premium subscriptions for ad-free listening and offline access.
In summary, adopting a freemium model can strategically drive customer acquisition, minimize initial financial barriers, and create opportunities for ongoing revenue growth through upselling and enhanced user engagement. Examples from Dropbox, Slack, LinkedIn, and Spotify illustrate how successful implementation of freemium models can lead to significant market penetration and revenue generation.
