Writing from over the Pacific again. Want to write about something a little thought-provoking.
I was meeting with the partners when they brought up a restaurant reservation app they found recently, where you can line up for a restaurant in the app, and show up when it’s time to be seated. Ok great, I had that idea. Didn’t see how to make money back in the day. Didn’t move on it. That’s a story as old as time.
Apparently, the way is to allow people to cheat. Freemium model wins out once again. It’s a genius little thing.
In case you’re unfamiliar with the freemium model, this is when a business provides a free tier of service to everybody, and then has additional benefits beyond that for paying users. For example, free Spotify has commercials, and Spotify Premium doesn’t. Best $10 per month you’ll ever spend.
Usually, these premium features aren’t needed by everybody, but those who do use them, appreciate them greatly, and are long-lasting customers. The idea is, acquiring paid customers is really hard, so first entice them with a freebie, and lock them into the system. From there, you can give them discounts on the premium version or tell them about new updates to the system, with this or that awesome feature on the pro version. Advertising to a captive audience is much easier than trying to buy ads on Google Adsense. This is the version of freemium we are all most likely familiar with.
The other version of freemium is a little more controversial. This app my partners brought up is a prime example, where you can pay to shortcut the system. Whatever the system is, be it grinding honor points in WoW or standing in line, or paying extra to have a driver pick you up before someone else. It’s like a video game, P2W. Pay to win.
Sometimes I think that sort of thing is a little unfair, that it benefits the rich at the expense of the poor in a society where the rich are already advantaged. That’s my socialist side showing, I guess. The economist in me sees market efficiencies, and the entrepreneur in me sees opportunities.
All in all, the freemium model is a GREAT innovation.
This is a winning business model for digital products and services, where labor doesn’t factor into it. In fact for this kind of service, it may just be the primary business model at this point. After all, the cost of acquiring a user for free is already high, but then the cost of turning them into a paying customer is much lower afterwards.
In the struggle to Escape the Suck, how could you possibly apply this to any businesses you have in mind or are already operating?
That’s what I’m thinking right now. Nothing we have in our 1-2 stable can fit the bill of being adapted to a freemium model. But in the future? Maybe.
Let’s look at the list of companies using the freemium model, just as a form of social proof and research. If these big guys are doing it, it works. This is maybe the best way to go viral.
(You probably already have these accounts, but referral links just in case)
- Apps like Elevate or Day One
- Dropbox and literally every other cloud data provider
What businesses do you run that could adapt this business model to improve? Maybe you could create a free tier if you don’t have one, with reduced services. Just enough to get them used to the quality of service that you provide.
I’ve tried to think about this for our little 1-2 Lab, but have been struggling with it, as it’s mostly labor. How could I automate part of it and give it away to people? I’ll have to think about it, and in the meantime, suggest this as a part of our digital strategy service to clients.