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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.

Origin and History of the Freemium Model

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.

How the Freemium Model Works

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.

Advantages of the Freemium Model

The Freemium model has several advantages:

  • Attract a large number of users: By offering a free version, you can attract a wide group of users who can try the product or service without any financial risk.
  • Convertability: Once users use and become familiar with the product or service, they are more likely to consider paying for additional features.
  • Word of mouth advertising: Free users can promote the product or service through word-of-mouth advertising, increasing visibility and attracting more users.

Disadvantages of the Freemium Model

Despite the advantages, the Freemium model also has disadvantages:

  • Difficulty converting free users into payers: Not all free users will become paid users, and it can be challenging to convince free users to pay for additional features.
  • Costs associated with free users: Free users can generate significant costs in terms of infrastructure, support, and maintenance.
  • Perceived value: By offering a free version, the perception of the value of the product or service can be diminished.

Impact of the Freemium Model on the Digital Economy

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.

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