The term Freemium is a business model that combines free-to-use features ("Free") with a premium offering ("mium"). In this model, a product or service is offered free of charge to users, but is charged for additional features, enhanced services, or virtual goods.
The Freemium model emerged as an evolution of the shareware business model, which allowed users to test software before buying it. The term "Freemium" was coined by Jarid Lukin in 2006, although the business model was already being implemented since the early 2000s.
With the rise of the digital economy, the Freemium model has gained a lot of popularity, especially in the IT sector, where companies offer basic free services, but charge for advanced features.
The essence of the Freemium model is to attract users with a free service and then motivate a part of them to become paying customers. The free version is usually quite basic, with the aim that users who require more functionalities, capacity or support, opt for the paid version.
A common tactic in the Freemium model is to offer a high-quality product in the free version to attract a large number of users and build a potentially paying customer base. The goal is for these users to find enough value in the free product or service to consider paying for additional features.
The Freemium model has several advantages:
Despite the advantages, the Freemium model also has disadvantages:
The Freemium model has had a significant impact on the digital economy. Companies like Spotify, LinkedIn and Dropbox have successfully used this model to attract a large user base and convert a portion of them into paying customers. Despite the challenges, the Freemium model has established itself as an effective monetization strategy in the digital economy.