Red Robot’s Jargon article series: Number 1 – Freemium

Red Robot’s Jargon article series: Number 1 – Freemium

Number 1 – Freemium

Welcome to the first instalment of our jargon article series – here we are going to take popular terms around software and IT and try to make a bit more sense of them, we will be releasing these over the next few weeks and months. First up in our series is the concept of “Freemium”.

Freemium is a word often used in software, it originated in the 1980’s but was more commonly known as shareware, the phrase Freemium was coined in 2006 and is an amalgamation of “Free” and “Premium”. This is a business model where a product is provided free of charge but includes additional paid elements or functions in it. It’s a very popular concept used in Software and especially in online gaming.

 

The concept of a Freemium business model is that you provide a basic product to be delivered for free; you need to make it popular, so it must be good and it must be marketed well. The idea being that the concept of the product is good so lots of people download it, once you have a large potential base you introduce elements that must be paid for in order to drive revenue out of the product. There are several ways you can do this: –

 

Advertising

As you now have a lot of users you are attractive to advertisers so you can place adverts around and within your product. If users do not want to see adverts they can upgrade – paying you a fee of course, so you either generate revenue from advertisers or from your users. Think of the popular mobile game Angry Birds – they use this technique to great effect.

 

A reduced or “lite” version

This is where you limit the features or content in the free version. Users then have to pay to gain access to the “full version” think of a computer games – developers often give users limited demo’s where only a few levels/ areas can be accessed. You need to buy the full game to experience everything.

 

Limited by time

Here you give away the full product, including all its features and functionality but you put a time limit onto the giveaway product. Lots of software products offer a 1 month free trial, in which you need to demonstrate the full range of your product so that people want to keep it once the trail is up. Adobe is a good example of a company that uses this strategy well.

 

The above are just examples on how the freemium model is used, there are many more being utilised. Clever companies often use multiple models in conjunction with each other to maximise appeal and therefore profitability. This is an increasingly popular model for software companies to use.