Freemium vs Premium: Business Models
What is the right business model for your company?
Choosing the most appropriate business model is one of the main dilemmas faced by those who venture into the technological world. Getting the right strategy to generate revenue in this area can be difficult if you don’t know the advantages and disadvantages of the options that lead the market. That’s why in this article, we will explore two of the most popular models: Premium and Freemium.
What is the Premium model?
The premium model is based on the direct sale of products or services in exchange for a fixed fee. In this model, the customer pays for the product or service they want to acquire and, in return, receives a complete and unrestricted experience.
A clear example of this model is streaming services like Netflix, Disney, Star+, etc.
What is the Freemium model?
The freemium model offers a product or service for free but with limited functionalities. Customers can use the product or service without any cost, but to access additional or more advanced features, they must pay a fee.
This is the case with the design application Canva, which has a free version with limited resources and a paid version with the possibility of accessing dozens of extra functions that enhance and optimize the experience. The same goes for YouTube, Slack, Zoom, and other apps that successfully use this strategy.
What are the advantages of the Premium and Freemium models?
The freemium and premium business models have proven to be effective in generating revenue in the digital age. Both have unique advantages that can be leveraged by different types of companies and businesses:
- Premium models offer a complete and unrestricted experience from the start, which can generate greater customer satisfaction and a constant flow of income for the company.
- It is easier to implement and manage since it does not require a very complex marketing strategy to attract customers.
- From a financial point of view, its success lies in its scalability.
- Revenue can become exponential while costs grow marginally.
On the other hand, the freemium model allows:
- Customers trying the product or service before making an economic investment. This can generate greater customer trust and loyalty.
- Reaching a wider audience that would not be willing to pay for the product or service from the start.
- Access to behavioral and audience profile data, which allows you to get to know the user and convert them into a loyal consumer through a personalized marketing strategy.
- Conversion possibilities increase considerably.
In short, the choice between a premium or freemium model will depend on the needs and goals of the company. If you are looking for a constant flow of income and a complete experience from the start, the premium business model is a good option. If you are looking for greater adoption of the product or service and a wider audience, the freemium model may be more appropriate.
The important thing is to carefully analyze the characteristics of each model and choose the one that best suits the needs of the company or product.
Here are some brands that have taken advantage of the best of each model:
An example of a premium model is the design software Adobe Photoshop, in which customers pay a monthly fee to access all design tools without limitations.
Another successful premium model today is streaming services like Netflix, where the user must pay a fixed fee to access its services. These platforms have different plans and options for subscribers to choose what suits them best.
In the case of the freemium model, the mobile game Candy Crush stands out, where users can play for free, but to get additional lives or moves, they must make purchases within the game.
At The App Master, we developed Rygbydat, a freemium mobile application that allows Rugby players, coaches, and fans to share and record the actions, data, and details of a match. The app has some free features, but to access a version with more options and benefits, the user must subscribe to a membership.
We can also mention the popular music app Spotify, which offers a single service for all its users, but those who do not subscribe to the membership are interrupted by ads in the middle of songs. On the other hand, those who subscribe to the membership do not have these advertising interruptions and can also download songs to their device and listen to them offline.
As we mentioned earlier, a freemium model can be more effective in reaching a wide audience and generating interest in the product or service, while a premium model may be more suitable if the aim is to generate direct revenue from users who are willing to pay for higher quality or additional features. It is important to carefully evaluate these considerations before making a decision.
In conclusion, the choice between a freemium or premium model will depend on several factors, such as the type of product or service offered, the target audience, the competition in the market, and the revenue goals of the company.
