This document discusses freemium business models and techniques for converting free users to paying customers. It describes how freemium can be viewed as a multi-sided market, with free and paid users as different customer groups that provide network effects for each other. It outlines 13 techniques companies use to differentiate their free and paid offerings in order to encourage users to upgrade over time, such as offering premium core features, related add-ons, beta access, and embedding the free product into paid solutions.

1. Practical considerations
http://nicolaspujol.com/ 1

2. Freemium 201 Outline
 Freemium as a multi-sided market
(MSM)
 Why a zero price can create new
markets, yet be noticed when it’s too
late
 13 techniques to turn free users into
paying customers
http://nicolaspujol.com/ 2

3. Multi-sided market (MSM)
 Conventional definitions: platforms
 A platform deals with different customer groups,
statically established
 One group is generally subsidized with goal to
maximize total revenues and profits
 Definition: “Markets in which one or several platforms enable interactions between end-users,
and try to get the two (or multiple) sides “on board” by appropriately charging each side. That is,
platforms court each side while attempting to make, or at least not lose, money overall”, Rochet
Tirole 2004
 Freemium
 Deals with same customer group (free and paid); not
necessarily a multi-sided platform or market
 However: in many cases, Freemium has similar
properties as MSM
http://nicolaspujol.com/ 3

4. Freemium as MSM
 Different sub-groups of customers: free
and paid users
 Each sub-group has unique needs, can be
segmented
 Each sub-group values the presence of the
other (hence, network effects)
 Central difference with platform model:
users convert from one side to the other
http://nicolaspujol.com/ 4

5. Freemium: two transactions
 Transaction T1 (side A)
 Seller delivers free product or service
 Buyer pays with mind share (currency)
 Transaction T2 (side B)
 Seller sells commercial product or service
 Buyer pays with money (currency)
 T2 generally happens post T1, and as a
result of it
http://nicolaspujol.com/ 5

6. Freemium: two transactions
Side A Side B
Mind share $
User Provider Buyer
Free goods Premium goods
Conversion
from A to B
http://nicolaspujol.com/ 6

7. What’s a market?
 Product 1: 90% market
share, priced at a1>0
 Product 2: 10% market
share, priced at a2>0
 What’s the market
size?
 Where is growth?
http://nicolaspujol.com/ 7

8. What’s a market?
 Product 3 appears,
priced at a3=0
 Market size in revenue
is UNCHANGED, free
contender often
IGNORED
 Market size in units
(usage) DOUBLES
 New segment created
on one side, new
commercial business on
the other side of MSM
http://nicolaspujol.com/ 8

9. Freemium: 13 techniques to turn
users into revenues
1. Free core 8. Stable version
2. Premium core 9. Immediate data
3. Related, same buyer 10. Deferred data
4. Related, diff. buyer 11. Free use
5. Stable trial 12. Embedded
6. Beta 13. Reverse Embedded
7. Enthusiast
http://nicolaspujol.com/ 9

10. Freemium: 13 techniques to turn
users into revenues
FEATURE TIME
DIFFERENTIATION DIFFERENTIATION
Related add-ons (B), Beta
Same buyer Stable version (A)
version trial
(A) Enthusiast
version (A)
Free Prem.
Core Core Stable version (B)
(A) (B)
Immediate Deferred
Related add-ons (B), data release data release
Different buyer (B) (A)
DIFFERENTIATION BY EMBEDDING
Free use Embedded Reverse
case (A) use (B) Embedded (B)
http://nicolaspujol.com/ 10

11. Further reading: white paper on SSRN.com (PDF)
Freemium: Attributes of an Emerging Business Model
info@nicolaspujol.com
http://nicolaspujol.com/ 11