Freemium Business Model

What is the model?
Offering for free some services and products with the main objective of acquiring a lot of customers.
Once they become “addicted” or loyal to the service and knowing that they would want more you propose them for a premium price some value added services / products, more sophisticated / enhanced version of the free service, or an extension (functional or quantitative). The initial customer loyalty and attraction is very important. This is how he will be willing to pay for extra service since he know the quality of the basic product and has been using it for some time. The psychological effect is “Now I’ll pay for it since I used to benefit from it and I can see the real value !”
In this way you have a return on investment for both the basic and the enhanced services
Shareware or open source software (Linux) use such a model. For example anyone can download a version of Linux from the internet. But once you are using the software you may need support and maintenance services as well as add ons.
How does 'free' in fact generate revenue?
Free tend to attract and keep loyal customers.
Then the customer base composed of loyal customers start to pay off for extra service. Revenue is then generated which covers the company initial development effort.

I work for an IT company (CA) and we used to have such practice. We give limited, trial copies for free. We also give free pre-sales service to install the software in the customers environment to have proof of concept on our solutions. But once the solution is tested and approved and the customer want to enroll it on a larger basis or functionnal perimeter then full price is charged with access to upgrades, support and maintenance !

2 examples of online businesses that are successfully using this model.

1) Boursorama
http://www.boursorama.com/palmares/palmares.phtml
People go on boursorama to look at stocks behaviour and day to day rates.
However loyal users are ready to pay subscriptions for extra services like volility studies, to have an expert view on stock rates (oeil de pro – Eyes of a pro), advice, or pay the service of a broker online to do the job for them


2) Freeware
http://www.ca.com/
CA, a software company used to put trial version of its products on line ( these are limited either by the time or the number of users). If such a software is of an interest to someone or a company he can choose to transform the transaction into a professional paid one.

3) Lettings service (Arguslogement.com, Meilleurtaux.com)/
http://www.meilleurtaux-patrimoine.com/index.php
One can look at advertissements for renting for free on the internet.
However in a view to sell one can pay to have one’s property estimated before putting it on sale.

4) Les echos,
http://www.lesechos.fr/abonnement/index.htm#
Newspaper offering free articles summary to internet users.
They also offer for some subscription fee more advanced and specialized articles on particular subjects or the full paper.

5) Etude du marché par un cabinet de Conseil (Gartner, IDC,…)
http://www.idc.com/
Some consulting company can put summaries of their studies online for free.
Companies willing to have a view at the complete picture should however pay to have the complete story and analysis.

6) Viadeo.com (job search, contact, network)
http://www.viadeo.com/connexion/
It’s a collaborative network built by registering online to the site. Its objective is to bring employers and job seekers together on the same network. You consult advertisements but once you want to advertise your own profile, you have to pay to get to be known.


A new article about Freemium (Why It Pays to Give Away the Store)

Your customers will do the publicity for you if your products quality is good and provided....
Here are nine tips from venture capitalists and entrepreneurs.

http://money.cnn.com/magazines/business2/business2_archive/2006/10/01/8387115/index.htm