Freemium bsiness model - Essay Example

Freemium business model Freemium, is a business model that offers core services or products for free but charge premium for special features in that particular service. It has attracted a large number of companies because it appeals to all forms of businesses, from online enterprises to offline businesses; mom and pop shops, to big corporations. This kind of model has been useful since 1980 and is mainly applied by software, as the production and other overhead costs are negligible. To be able to make freemium work, the business must get lots of free users, get all these users to stick around and also get a service whose value-users increase with time (Anderson C 2009).

A number of companies that have applied the use of freemium business model in their operations have experienced high profits. It is axiomatic to argue that when a free service is launched in the market, it will be easy to get many customers. The marginal cost which is incurred is usually very low when this model is used, besides, one user can invite other users who might be interested. In marketing, it is very important to apply network effects, because the moment one person appreciates a product, it will be very easy to attract others.

For example, a phone can only be useful when you can use it to call another person. Companies therefore introduce free basic products to attract many users to it (Schlie, 2011).Web Notes is one of the companies that applied the freemium business model. It is a start up that has created technology to make researchers and professionals work much easier. This company has ridden the freemium to a financial success with almost double in their revenue from the little initial investment of $35,000. They advanced a PDF annotation capabilities that has got an amount tagged to it.

They offer two paid options to users’ i.e. pro subscription and multi-colour annotation that entails coaching and sharing notes through RSS feeds. The premium version, which is charged at $300 annually, supports administration and monitoring, and Web Notes is swimming in the oceans of success because of its freemium business model (Wrox, 2011).Despite the successes of Web Notes, this model brought with it some challenges, one of which is getting lots of users, who must be returning users, because they must stick around to love the product.

The model also takes a long time to be profitable because users can take longer to appreciate it and convert value of the product. For Web Notes, it took almost two years to start realizing profit when they introduced paid premiums. Ning is another company that could not sail over these challenges and therefore went premium. It did not work for them because many people loved generic social network unlike a niche network (Schlie, 2011).For the past 12 months ago, the number of esteemed customers has gone up by over 150% and profit has grown extensively by 650% with over new 30,000 new clients.

Freemium business is delivering over 700 Million on monthly basis which is quite a big growth (Wrox, 2011)In a nut shell, before a company decides to apply a freemium or premium, it should know how big the company should be, value of free users, costs of maintaining free users, market size and finally the utility derived from another customer when others use the product.ReferencesAnderson Chris, Hyperion. (2009). Free the future of Radical Price; E-book.Schlie, Erik,and Rheinboldt, Palgrave (2011) Simply Seven: Seven Ways to Create a sustainable internet business, NY: Macmillan.

Wrox (2011). The Art of the App Store the Business of Apple Development.