Earlier this month, I attended an interesting presentation by the famous editor-in-chief of Wired Magazine Chris Anderson in the southern Swedish city of Malmö, along with the entire Swedish blogosphere (as a Swedish acquaintance of mine put it).
Chris Anderson focused on ideas in his new book “Free – The Future of a Radical Price” due out in a few months. As a starting point he mentioned the generational divide between those of us who remember a time when there was no World Wide Web and young people who are digital natives. To the latter, it is self-evident that content and services on the web are free. To the rest of us, he argued that the drop in pricing of processing, storage and bandwidth means that we need to consider them to be free.
This will be a corner-stone – and challenge – in the future of digital economics. Does this mean that you can’t make any money on the web? No, according to Chris Anderson. He went on to explain new business models that have already emerged and which he expects to work in the future.
The most innovative model is probably the freemium model (made out the terms free+premium) – it is the inversion of free sample model where you give away 1% to sell 99%: in the freemium model, you give away 99% to sell 1%. An example is social networking site Ning where a small percentage of users pay to get rid of ads. Another implementation of the freemium model is e.g. seen in iPhone applications where the first version is free: once it gains some popularity, it gets possible to release a paid version 2 which is easier to use. Yet another model is Wired, where all the content is available on the web free of charge, but still they manage to sell the printed magazine.
An obvious drawback of the freemium model to many organisations will be the need to develop and maintain both a free version and paid version i.e. potentially a significant duplication of efforts.
The big question is how businesses are going to be able to compete with free – and then converting the best customers to pay them, happily. What’s your point of view?
Niels Hartvig February 18th, 2009 19:07
At Umbraco we’re basically using the freemium model in multiple ways with great success and I think this approach will become more and more popular in the “traditional” software space :
- We have a free version of our Web CMS as well as a supported version with warranty (but in reality the core product is the same. The difference is in the add-on products and services which makes it easy to administrate). The 1%-to-99% ratio is our goal
- We have a paid subscription based tv station delivering quality learning about the Web CMS costing around EUR25 / month. In this perspective we turn the classic CMS revenue model upside down where we go for tiny sales but many customers (infact close to consumer level), where as the traditional vendors usually have a (relatively) small amount of customers paying heavy license fees
As the cost of software distributions is 0 today (in fact there’s even potential revenue models on distribution) and the cost of software today is substantially lower than marketing and selling it, freemium is a brilliant model.
Niels Hartvig,
Founder, the umbraco cms project