But having certain features being paid-only, highlights that the paid version solves a customer problem. Which both pulls users to the paid version and makes it easier to communicate the advantages of the paid version.
From a business model design perspective, a freemium product should be designed to maximize revenue by taking advantage of both the user acquisition opportunities and virality of a free product and the monetization of a paid product.
User acquisition comes in many forms, but a free option makes it easier for users to sign-up and try out the product. Which should help to optimize registration and activation flows. Two well-known distribution channels that work well for free products are organic search and mobile app stores. In addition, free products are easier to link to from social media like Facebook and Twitter. A free product can also be designed to be inherently viral like Hotmail and most communication services.
However, the free part of the freemium product needs to have long-term utility to drive strong retention. Poor retention among free users offsets the positive effect of stronger acquisition. The reason is that without strong free retention, the product will not have a growing base of active free users that over time get more likely to convert to paid.
When designing a freemium product, one needs to create a path to paid. How does free and paid parts of the product interact in activating a free user, getting them highly engaged and getting the user onto paid? The product business model design decisions of what's free and what's paid thus become key drivers of both product quality and overall sales. With an integrated freemium model, sales cannot really be separated from product. In practice, the product organization needs a to have online marketing and sales skills in addition to product management skills in order to both create a great product and drive sales. Conversely, the conversion/sales team needs product managements skills and think long-term about the product in addition to hitting the sales targets.
The answers to the questions what's free and what's paid differ between products and industries. The answers depend on the product, the competition acquisition channels, types of customers and many other factors.
One thing that paid-only features should have in common should be that most users find them to be of high utility and have high willingness to pay for those features. Utility is a generic term to describe what the user might find valuable, like solving a business problem, having fun or saving time.
Some exempels of paid features in freemium products:
- Users pay to have their classified ads highlighted at Avito or Tradera. To solve the problem of selling goods quicker and at a higher price.
- People pay to see who have visited their profiles. Currently LinkedIn is the most famous example, but Swedish community LunarStorm did this in the early 2000's. Users pay to satisfy their curiosity or identify an opportunity.
- Users pay to get additional currency in games. Often at its core in order to have more fun by saving time or getting access to better gear.
These decisions are almost always product specific, but the difference between getting them right and getting them wrong can mean the difference between financial success and bankruptcy.
(With more time this would have been a shorter, well-edited post.)
More posts on freemium strategy:
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