Freemium

Freemium refers to a business model of providing a free product with the hope that customers will later be willing to pay for extra features that will enhance their enjoyment of it. The term is a combination of the words "free" and "premium" and was coined by Jarid Lukin and Fred Wilson in 2006. In 2024, approximately 80 to 85 percent of leading applications in the iOS App Store utilized a free or freemium model, making it the most prevalent monetization strategy among popular applications. 

Model

In the freemium model, a manufacturer gives away a basic version of its digital product to consumers for free in anticipation that a smaller share of people who have tried it will be interested in buying add-on features or a premium version. Generally, freemium products are offered to a broad pool of potential customers to gain a larger consumer base. The free version of the product, however, is limited in its capacities or offerings. In a successful rollout of a freemium model, a small pool of these initial users will pay extra money to harness add-on or hidden features to gain greater value from the product. These paying customers enable the product to remain free for all its users while providing income to the developer.

Freemium online games such as Candy Crush Saga or Clash of Clans provide a basic game platform to anyone who downloads their software. These versions are intended to be relatively simple and potentially addictive games that provide a level of enjoyment regardless of whether the user ever elects to pay for add-ons. However, to unlock special features—such as more powerful tools, weapons, or extra turns—players must use real money to buy in-game credits. These credits can then be exchanged for in-app products and services.

While a small percentage of a product’s user base will typically invest money in the advanced features of a freemium product, users are generally willing to spend large sums of money on in-app purchases. It is estimated that the 4 percent of users of Candy Crush Saga who purchased in-game credits spent over $1 billion on the game in 2024, and the game has reached over $20 billion in lifetime revenue.

However, the basic free service must be engaging or useful enough to maintain a large potential customer base. If the content is too limited or uninteresting without the added premium components, the product risks alienating its users, even though it is free.

Freemium is different from other models that allow users to sample their product as part of a free trial. In this business model, customers are given access to all the features of a product for the duration of the trial. If, at the end of the trial period, a user enjoyed the benefits of the product, it is hoped the user will buy a copy at its regular price.

Freemium products are also different from advertising-sponsored products that are provided for free. Under this system, an item is offered to all consumers without cost, but rather than asking consumers to buy premium services or add-ons, the product will show a series of unobtrusive ads—usually oriented toward the specific consumer—to generate revenue. However, more freemium products are finding unique ways to introduce ads to their products, which in turn earn them more revenue.

Advantages

Digital production of materials has changed the distribution model for many software products. In particular, apps, computer games, Internet tools, software, and web services are available as downloads from a home computer or mobile device without the need for either a storefront or salespeople. Once the software has been set up, the cost of distribution to the manufacturer largely remains the same whether one copy or thousands are downloaded. Therefore, providing free access has no added expense. Additionally, as the product is offered free, freemium products benefit greatly from both word of mouth and alternative sources of publicity, such as blogs and social media—all of which are free.

This model is particularly attractive to start-up companies. With less overhead from advertising and sales, the freemium model provides new and smaller companies an easier means of entering the market. Additionally, freemium products are typically a more lucrative and sustainable source of income than either advertising-based models or free trials. For consumers, the ability to invest in a product after testing its features allows them to freely sample it without having to cancel a subscription fee.

Types

The most common examples of freemium products are apps and games that charge for access to premium services. These games often build a platform in which there are different levels or tools available for purchase to the consumer.

However, the model is in use by other platforms. The New York Times, for instance, is one of many newspapers exploring the use of a freemium strategy called a paywall. Visitors to the main site for the online form of the newspaper are allowed to read certain articles free. Typically, these articles are for the current day only and readers are limited in the number of free articles that can be viewed on a monthly basis. Other articles advertised on the site require the user to create an account and pay for further content by purchasing a subscription that gives them unlimited access. Similarly, sites such as the photograph-sharing platform Flickr use the freemium model to provide different tiers of content.

Another freemium model is typically used by software programs. Antivirus programs, social media sharing tools, and zip file utilities, for instance, often provide a basic form of their software as a free download. Once purchased, the developer will often promote the use of an advanced version of the software with deluxe features.

Bibliography

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Takahashi, Dean. “King Celebrates Candy Crush Saga's 15000th Level and $20B in Revenue.” VentureBeat, 27 Sept. 2023, venturebeat.com/games/king-celebrates-candy-crush-sagas-15000th-level-and-20b-in-revenue/. Accessed 29 Jan. 2025.