The Freemium Business Model for Content
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.