Freemium pricing is a business model where a company offers basic services or features for free while charging a premium for advanced or special features. The word “freemium” is a portmanteau of the words “free” and “premium”.
This model is commonly used in the software and digital services industry. The goal of the freemium pricing model is to attract users with the free version and then upsell them to a paid version that offers additional features, capabilities, or benefits.
Examples of freemium pricing can be found in numerous types of businesses, such as:
- Software and applications: Many apps offer a free version with basic features and charge for access to more advanced features, increased capacity, or an ad-free experience. Notable examples include Dropbox (cloud storage), Evernote (note-taking), and Spotify (music streaming).
- Online games: Many online games are free to play, but they offer in-app purchases for additional features, special items, or advanced capabilities.
- Professional services: Some platforms, such as LinkedIn, allow free access to basic professional networking services but offer premium subscriptions for advanced features like in-depth search capabilities or detailed business insights.
While this model can be very effective at driving user acquisition, the challenge for businesses is to provide enough value in the free version to attract users, but also hold back enough premium features to incentivize users to upgrade to the paid version.
Example of Freemium Pricing
Let’s take the example of Spotify, a popular music streaming service.
Free Version: Spotify offers a free version that allows users to listen to music and podcasts with some limitations. The free version includes ads that play between songs, it doesn’t allow for offline listening, and when using the mobile app, users can’t select specific songs to play but rather have to shuffle play an artist or playlist.
Premium Version: For a monthly subscription fee, Spotify offers a premium version that removes these limitations. With Spotify Premium, users can listen ad-free, download music for offline listening, and have the freedom to play any song they want on demand. There are also a few additional features such as better sound quality and the ability to use Spotify with other devices such as speakers and TVs.
In this example, the freemium pricing model allows users to experience Spotify’s platform for free, but if they want additional conveniences and features, they can choose to pay for the premium version. This model has worked well for Spotify, attracting millions of free users, many of whom decide to upgrade to the paid service.