Freemium Publishing & Sustainable Business Models
Here is a great speech by Chris Anderson about how reputation and attention are becoming the new economies upon which much of the internet (and potentially offline) world may be based upon.
Freemium consists of giving away value (and possibly wrapping it in ads), as a lead generator to sell premium products and services. The model minimizes consumer risk by allowing them to become familiar with and reliant on the service before paying for it.
- Fred Wilson, the VC, describes it as his favorite business model.
- Some of the biggest challenges with freemium based business models are deciding how much to give away free and how much support to give away for free.
- Typically freemium offers have ~ a 3% conversion rate, which is typically packaged as a recurring revenue stream.
A Startup Nation article explains why the model is so powerful:
David Beisel, principal at Masthead Venture Partners in Cambridge, Mass., says the freemium model is attractive to VCs for the same reason it’s attractive to entrepreneurs. “Giving away a free version of the service allows consumers to not just learn about it through collateral or a free trial,” he explains, “but it presents them the opportunity to fully adopt the service and incorporate it into their lives.
“Those types of customers are ones who begin to evangelize the product to others. Entrepreneurs then greatly benefit, as powerful and inexpensive word-of-mouth marketing kicks in.”
One of the things I believe is that just like services that move toward free, all forms of content (even specialized high value niche content) will follow the same path. Information that is sold as a product (not a service) will keep seeing its margins decline as self satisfying hollow chucking and local substitution (ie: wikipedia editors rewriting your content, or someone uploads it to a torrent site) drive the value of most information to nothing.
People buy the reputation, experience, story, and relationship. It is more emotional than logical, and so publishers will become interactive media artists.
Video link via Seth.
Comments
Freemium is a great business model if you need to build a critical mass of users for your business in the initial stages.
I run an Internet radio network www.di.fm/www.sky.fm. We've been doing Freemium for almost 4 years now.
It works, and the 3% conversion rate is usually spot on. So much so it's been a personal rule of mine to apply 3% to most conversion scenerious, freemium or otherwise.
The part I would complain about is wrapping the free stuff in ads. In my business it is usually audio ads - and that's not based too much on permission. It does feel like spam a bit, you can do your best to choose best ads and decline spammy ones. But at the end of the day, until major new systems are made 5 years from now for better targeting, the ad will come on eventually and interrupt what you are doing somehow. Sure, at least you have a choice to go Premium, or tune out and go elsewhere. But the idea is still looking for better ways to implement it, that process never ends.
Props to you, Ari, for being an early adopter on the freemium band wagon.
I've been working on bringing the freemium approach to my football site for almost a year, and if that 3% conversion figure is right, we should be in really good shape a year or two from now!
I think the freemium concept works for some publishers-those who are well known and established. Some start-up sites may become popular but their popularity does not necessarily translate into credibility. When it comes down to it, I believe that people will invest in credibility over popularity. For example, if you want legal advice, you are going to consult ( and pay) a well established lawyer-- not an article on a relatively new website written by a volunteer editor.
Furthermore, I believe the Freemium concept will work for companies that can take an established service/product and tailor it to a particular audience. A good example of this is Google's search-related services tailored to photographers, writers, scientist, web masters, etc.
Freemium may also work if the company produces a channel on a new found niche.
I sometimes work near Aaron at his office upstairs and was present when he played this video. It was so engaging that I would ask him to pause when I briefly left the room. The freemium concept can be applied to both virtual and physical products. What really piqued my interest was the speech on the momentum from large "one size fits all" retailers to smaller niched online retailers. This approach enables businesses to give what the market it really wants, not what stores offer.
Aaron,
Thank you for sharing Chris's keynote link! As a cover to cover reader of Wired and having read Long Tail I was excited to see Chris Anderson speak about his upcoming book topic.
I have been working on a business model conversion from the 25 year running Infomercial & paid content Carleton Sheets Real Estate investing program to an on-line content Freemium http://www.peiuniversity.com . Over the years the successful Carleton Sheets model has been re-re-reproduced and with content in general becoming so available we "rounded down to zero" the cost of the real estate investing course. Our new model is to build traffic and trust with our freemium (99%) and our 1% is offering real estate investing coaching.
Note, Your blog is one of the best Freemiums out there... it gave me the trust to buy your Book!
Thanks for all your smart posts.
-Kevin
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