freemiums

Freemium is a business model in which a product or service is provided free of charge at a basic level, with advanced features, enhanced capabilities, or additional usage offered behind a paid tier. The term blends “free” and “premium” and was popularized in the early 2000s, attributed to venture capitalist Fred Wilson in a 2006 blog post. The model is widely used in software as a service (SaaS), mobile apps, online services, and games.

In operation, users can access core functionality at no cost. Revenue comes from converting a portion of these users to paid plans, through subscriptions, one-time upgrades, or in-app purchases, as well as advertising or marketplace fees. Common structures include: free basic tier, paid pro or business tier with higher quotas, priority support, or advanced features; and usage-based tiers where cost scales with consumption.

Advantages include low barrier to user adoption, scalable distribution, and data-driven monetization. Disadvantages include potential low conversion rates, high support costs for free users, feature creep, and the risk that the free tier cannibalizes paid revenue.

Variants include open core (open-source base with proprietary paid extensions), and ad-supported freemium where the free tier is financed by advertising. Examples cited: Spotify, Dropbox, Slack, and many SaaS products, as well as mobile games with in-app purchases.

Metrics used to assess freemium models include activation rate, conversion rate from free to paid, ARPU, churn, and customer lifetime value.