There are many different revenue models for making money through owning a website. The most popular models are a) providing a free website and monetizing the website by running ads, b) running a pay website (subscription/pay accounts) with out ads, and c) running a mostly free website with some pay options, or pay accounts with additional features. This last option is known as the “freemium” revenue model. Many of the websites that I have created use this model. Instead of discussing different ways to implement a freemium website, which can be found elsewhere, this blog post will discuss the elements of a web-based service that make it a prime candidate for the freemium revenue model.
New Type of Product
When a company creates a brand new type of product, or market, freemium can be the best way to get the product off the ground. Being able to entice users to use the product for free can jump start a new concept into being a huge hit. If you are creating a product that is hard to explain to users who have never used it before, freemium is a good revenue model to consider. Twitter.com is a good example of a product that would be a great freemium product. Although Twitter has not released upgrade accounts, for higher volume users or for advanced users, the Twitter concept was new when it was introduced and they allow users to use the service for free in order to get it off the ground. Although Twitter has focused on alternative advertising methods for its initial revenue attempts, at some point upgraded accounts are bound to come into play as a revenue stream. Dropbox.com, an online storage service, is hard for the average PC users to conceive. They have used freemium as a way to get users, mostly from current user referrals, to try their service. So when you tell your mom and dad that Dropbox is an option for backing up all those new digital camera pictures, they can try it out without having to understand the concept first. Once they have decided that they do indeed need a cloud storage service, they can upgrade their account and start backing up all of their files.
Some products take a longer than average amount of time to sufficiently experience their features. If your users need to interact with your website over a period of days or weeks just to discover whether the product is worth using, then freemium is a good option for your website. This type of website differs from the type described above simply because these types of services are common and already understood by potential users. Flickr.com is a good example of this type of website. Although you can view friend’s pictures on Flickr and become attracted to it’s ease of use as an end user, you won’t really know if it’s worth paying for extended use until you try uploading and organizing your photos for yourself. Since uploading and organizing is what Flickr does best, this must be experienced to make an impact on users. It will take a notable amount of time for a user to upload photos and start organizing them before they could give a good review of the website’s services. Once a user has used the website for a significant amount of time, a percentage of them can be convinced that additional features, like more data storage, are worth paying for. Flickr is not a new concept, but it does require extended time to analyze its usefulness. Products that users will use for a significant amount of time, such as web-based email, can also be great examples of the freemium model. If a user is going to switch from one service to another they would be thrilled to be able to give it a test drive before committing to the new service. Gmail.com, or any other up-and-coming web-based email system, who has to get Yahoo Mail and Hotmail users to jump ship, is an example of a potentially great freemium concept. If you’re going to expect your users to become intimate with (used daily/weekly for years) your product, a freemium model might be the right option.
Social Networking Websites
On some websites the main commodity is the people using the service or the content that those users create on the website. It can be very complicated to start a product like this. In order to attract users these services must be mostly free in most cases. Myspace.com, Facebook.com, Match.com, and even our own FidoFinder.com are examples of websites that only become useful once many others are also using the service. As more users sign up for the service, the service is worth more to its current users. These websites work best when they are of the freemium revenue model. On Fido Finder it’s important for us to have both users who register lost dogs and user who register found dogs. Lost dog finders post for free, as do lost dog owners, but lost dog owners are presented with optional upgrades to their account. It’s these users who pay for the usage that the other users get for free. Without the 100% free listings being taken advantage of, though, the group of users who would consider an upgrade simply wouldn’t exist. This is the same for dating, or other social, websites. If your website is going to need to develop a large network of users before it becomes valuable to the users, freemium is probably the best way to go.