Freemium

Freemium is a way of selling software in which a basic version is free for everyone, for as long as they like, and a paid version, the premium, unlocks more. The word joins "free" and "premium". The free version often shows advertisements. A monthly or yearly subscription removes them and adds features, such as unlimited use, offline use or better quality. Only a small share of users ever pay. So a freemium product needs a very large number of users.

Here is how it works in general. The company gives away the free version to bring in as many users as it can. Each extra free user costs the company very little, but the free users together still cost money: servers, storage and support. Advertisements shown to free users pay part of that cost. The company then decides where the free version stops. It may limit how often the product can be used each day, hold back a feature, or keep the best quality for paying users. The limit has to be set carefully. If the free version does too little, people leave. If it does too much, nobody pays. Many apps also try to bring users back every day, for example with points and streaks, a streak being the count of days in a row that the user has practised. A user who comes back every day is more likely to pay later. The share of free users who become paying users is called the conversion rate. It is often only a few per cent.

Take, for example, a language learning app. Anyone can do the daily lessons free, with advertisements between them, and a subscriber gets no advertisements and unlimited practice.

Consider a resume builder. A job-seeker can fill in a résumé template free, but must subscribe to download the finished résumé or to use the better templates.

For instance, a text-to-speech app reads any page aloud free in a basic voice, and keeps the natural-sounding voices and faster reading speeds for paying users.

Freemium suits software best, because serving one more free user costs so little. It is also why many SaaS products sold to companies offer a free plan for small teams, and charge once a team grows.

How is freemium different from a free trial? A free trial gives the full product, but only for a fixed time, such as 14 days, and then the user must pay or stop. A freemium product stays free forever, but it stays limited. Freemium is also different from a product paid for only by advertisements, such as a free TV channel, where no viewer pays and advertisers cover the whole cost. Those ways of paying for media are described in AVOD, SVOD and TVOD. And freemium is different from the open source business model, in which the full software is free and the company sells support and services around it.