Is the freemium business, good business ?

March 29th, 2010 | News

Liz Gannes on GigaGom writes about companies such as Pandora, Dropbox, Evernote, Automattic and MailChimp which work on Freemium model – that is, offering a free service with the option to upgrade.

Don’t spend money on marketing, do offer flexibility and data exporting to eliminate buyers’ regret, make sure to capitalize on and value goodwill, and only charge for things that are hard to do. That’s what some startups say is the key to success in the freemium business. But the biggest reason the five presenters this morning at the Freemium Summit in San Francisco — Pandora, Dropbox, Evernote, Automattic (see disclosure at the bottom) and MailChimp — are doing well is because they have great products that people want. They’ve been able to get those products to a broad audience by using the freemium model — that is, offering a free service with the option to upgrade. It’s an increasingly important business model, but one that’s hard to navigate, so their anecdotes, open sharing of data, and lessons learned were really valuable.

As wikipedia explains – " Freemium is a business model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features. The word "freemium" is a portmanteau created by combining the two aspects of the business model: "free" and "premium". The business model has gained popularity with Web 2.0 companies."

The freemium model was first articulated by Fred Wilson and further defined by Chris Anderseen

Here are 3 videos from YouTube which will help you understand the freemium model better.