There’s No Such Thing as a ‘Freemium’ Lunch
An old adage suggests that ‘there ain’t no such thing as a free lunch.’ Really, what this obviously means is that you can’t get something for nothing. However, with recent online trends and with software marketing, in particular, this adage might now be up for debate.
What Is Freemium?
The word used to describe this marketing trend is the term, ‘freemium.‘ Now, I might not be the first to question this portmanteau of the two words, “free” and “premium,” but more often than not, there’s not much that’s premium about freemium. Regardless, nearly everyone in the developed world has tried some freemium at some point in their lives. In fact, an article at wired.com credits the inventor of Gillette razor blades as demonstrating that you can make money by giving something away for nothing.
Off the top of my head, you can buy a Gillette Fusion razor blade with a blade, holder, and a battery for usually less than ten bucks. However, when you go to buy replacement blades, it will cost you an arm and a leg. Is it just me or does the wear indicator look like it’s nearly done after just one shave? I mean it’s not like I grow a beard as thick as Donald Draper, the lead character of Mad Men.
Back to freemium… As I said before, freemium is all around us. The difference between traditional free samples and freemium comes to light in the software market. For companies to give away free samples, there’s a fixed cost associated with this model. In contrast, with freemium software or websites, the distinction is best described again by the Wired.com article by Craig Anderson:
“A typical online site follows the 1 Percent Rule — 1 percent of users support all the rest. In the freemium model, that means for every user who pays for the premium version of the site, 99 others get the basic free version. The reason this works is that the cost of serving the 99 percent is close enough to zero to call it nothing.”
One of the tricks to making a successful freemium model is that you offer products or services that become popular based on the value offered–yes even if it’s free you have to create value for users. Secondly, successful premium models rely more on good will and word of mouth rather than spending large dollars on advertising.
Back in 2006, Fred Wilson described the freemium model:
“Give your service away for free, possibly ad-supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.”
Examples of Freemium:
I personally like some freemium models better than others. Models that create win/win situations are the best examples. Others can leave customers feeling either tricked, annoyed, or yes, short-changed. Think of those free virus removal or spyware scans that will scan your computer for free (if they’re not malware) and then tell you that you’re computer’s infected and you have to pay to remove the actual viruses.
1. WordPress Themes:
Several companies offer two version of the same WordPress theme: a freemium version and a premium (paid) version. Once you download and install one of these free themes, you soon realize that many of features that you wanted are only available in the premium version. Is it a free lunch? Perhaps, but one at a restaurant I would tend to avoid.
2. WordPress plugins:
I haven’t tried too many freemium WordPress plugins since they seem to be in the minority. Many free plugins either just ask for donations to the author or are used to generate traffic for the author/his company. I did try Webo Site speed-up which didn’t work very well, created display issues on my website which took time to sort out, and ultimately didn’t speed up my blog any faster than WP Total Cache.
Matt Mullenweg has created a very interesting and even profitable business model based on giving away free software and blog hosting. Though one could argue that Automattic could dramatically increase their profit margins by shifting their current model, Matt’s demonstrated how quickly a business can acquire traffic/users online by offering quality, free products and services. Collectively, sites on WordPress.com get over a billion monthly page views.
Note: Here’s a pop quiz for you. Which domain has a higher PageRank, Harvard.edu or Ma.tt (the domain for the personal blog of Matt Mullenweg, the founder of WordPress)?
Would it surprise you if I told you that they both had the same Pagerank of 8?