Freemium

It’s funny that this business model comes up because I was just on the Skype web site today thinking about how it makes its money. I remember looking around on the site for advertised links of which I saw none. This intriguing business model now known as "Freemium" is really quite simple. You provide a service that the customer was already looking for. You provide that service for free and keep it free forever. How do you make money? You offer bonus packages and services that require payment. In essence, you get people so hooked on your quality product, that they become convinced they need this other thing… a better, stronger version of the product or an add-on, and then they have to pay for it.

I found an interesting blog that talks more specifically about how this business model is beneficial for both involved parties. David Beisel writes:

Risk is mitigated by the user because s/he isn’t paying up front. It isn’t until the consumer is comfortable with the relationship where s/he is ready to overtly pay to upgrade it. And by this point, the initial value delivery is in the rearview mirror because the connection between customer and service-provider has strengthened in the meantime. Again, the separation of initial value-delivery from eventual payment helps both parties – by alleviating risk for the consumer and building loyalty/allegiance for the business.

I think this is a pretty good assessment. It seems that most customers will use the web site for the free stuff for a while first before they become convinced they need all the other bells and whistles. One thing is sure, though. The base product has to be strong enough to lasso the customer in for the premium goods. Reza found a good article about this and how to let the customer lead the way. The bottom line: be ahead of the game and have a quality product.

Dictionary.com offers this service. I often use this web site to look up words (obviously) but also to translate text and find synonyms. It turns out, for a fee, you can subscribe and get everything you get for free only without the "distracting advertisements" as well as word games and further information about grammar and language.

Codestyle.org also uses the Freemium business model. It provides a wide variety of information to web developers thereby getting them hooked on the site and all it has to offer, then says "you probably also NEED these thing..." In this web site's case, those things are: all premium content, a year of updates, email notification of new items, and post follow up questions on all answers.

Swicki:
What is a Swicki? A swicki is a "new kind of search engine that allows anyone to create deep, focused searches on topics you care about. Your swicki presents search results that you're interested in, pulls in new relevant information as it is indexed, and organizes everything for you in a neat little customizable widget you can put on your web site or blog."