So imagine you are a kid and your summer vacations are going on.
Let's say you wanted to earn some extra income, so you decided to open a lemonade stand.
Now you started selling these lemonade, but nobody was really purchasing these lemonade from you.
So one of your uncle came up to you and he advised you to sell the plain lemonade for free.
And the value proposition was you sell this plain lemonade for free.
And anyone who drink this plain lemonade, you will offer them around five different flavors of lemonade,
like watermelon, strawberry at the price of $1 a glass.
That means after drinking this plain lemonade, if they are interested in one more glass, then they
have to pay for these flavored lemonade.
So then they saw a lot more couples started coming up to them and started getting a free plain lemonade
along with the flavored lemonade glass for $1.
And that's what a freemium pricing strategy looks like.
You give the basic version of your product for absolutely free.
And if they wanted to try it out further and they have to pay for it.
So if you are using Google Drive to upload all your media documents and file LinkedIn to network with
all these different people slack to communicate with your team member or let's say Monday dot com to
manage all your teams.
In that case, you're already using a product that use freemium business model.
So here we want in this video we're going to talk about freemium, business model.
Now, freemium business model is used by multiple digital apps and mobile services.
So let's talk about what exactly is freemium business model.
In this video, we will first understand about what is freemium business model.
Then we will understand how different companies use freemium business model.
And in the end, I'm going to give you a couple of examples and how you can implement freemium business
model in your business.
Now, freemium is made up of two different word free plus premium.
That means you allow users to utilize the basic feature of a product, game or service for free and
then charge for upgrade to the basic package.
So let's say you have customer on one side and a company on another side.
Now the company gives their basic product for free to these users and then they will charge for these
extra refills or complimentary product.
And that's the whole idea of having a freemium business model.
So if you have used products like Google Drive, iCloud or Dropbox, they have a free product where
you get a certain amount of space for free.
In case of Google Drive, you will get 15 GB of storage space for absolutely free.
If you are a Google user for Dropbox, they will give you two GB of space for absolutely free.
And for iCloud, they give five GB of storage space for free.
But if your media file or let's say storage space will exceed this limit, then you can buy some additional
space at a premium price.
For example, Google Drive can give you 200 additional gigabytes of space for around 7 to $10 every
single month.
Now, let's understand why companies are using freemium business model.
I mean, why they are giving their product for free to these users.
Well, freemium business model is widely used by web based services, specifically these software products
and some digital apps.
And the main idea is you provide the basic functionality of your product for free to some user, and
then you will entice those users to pay for your premium product.
Let's say if those users wanted to have some advanced feature or a premium feature in their product,
in that case, they can take a paid plan of your product.
If you look at companies like Spotify, Spotify use free and premium as two different factors.
They use free plan as a growth vector.
If you give your product for free, then you end up attracting millions of people.
So Spotify normally give a 14 days free trial on their product, and that's how they are able to get
more number of customers on their app.
Now, out of those millions of customers, some customers will end up taking a premium version of Spotify,
and the paid plan will act as a revenue vector.
Now, some people call this strategy as a top of the funnel strategy, because when you launch a free
plan or a free trial, your top part of the funnel will widen and you can attract more number of users
who can try out your app and then you can show how good your product is.
And some of the people might end up taking a premium version of your product.
So in case of Spotify, Spotify generates the majority of their revenue and profits from the subscriber.
These are the paid subscribers and they generate a very little amount of revenue from advertisement.
So if you are using the free version of Spotify, you may have seen these ads coming in between these
different songs.
Now let's understand how these different companies are using freemium pricing model in different ways.
So when we talk about the different types of freemium pricing, we have capacity based freemium, we
have feature based freemium, and we have time based freemium.
Let's understand these three with the help of few examples.
So Google Drive use capacity based freemium business model and they will give you 15 GB of storage space
for absolutely free.
But if your media files or let's say a document will exceed this limit, then you have to pay a premium
price if you wanted to buy additional space.
So that's why they use a capacity based freemium.
Then we have feature based freemium.
That means you can use this product for as long as you want, but if you want it to have an access to
the certain feature, then you have to pay for the product.
If you look at products like LinkedIn or Slack on LinkedIn, you can use LinkedIn for absolutely free.
But if you wanted to reach out to so many people or let's say if you wanted to access their learning
platform, in that case you have to take LinkedIn premium and that's your feature based premium.
Then we have time based freemium or be some people call this a time bound premium.
That means you can use this product for free for a certain period and then you have to pay for it.
We call this certain period as a free trial period.
One of the good examples of time based freemium is mondaq.com.
Money.com is a CRM and you can use this product for absolutely free just for 14 days.
And that's the free trial they give.
And because of these different types of freemium pricing model, some companies were able to attract
millions of users.
If I'll give you a simple example, companies like Dropbox, Dropbox was able to attract more than 500
million users just because they were giving a free version of their product that was get just two GB
of space for free.
And if you wanted to store your media.
So let's say acid for more than this free space, then you can take our premium version or you can buy
some additional space.
After Dropbox, these digital apps or software companies started using these different types of freemium
business model.
Some started using this capacity based freemium.
So companies like Dropbox, Evernote, Google Drive, iCloud, all these all these media storage or
asset storage platform started using capacity based freemium.
Then software product normally use a feature based premium.
So products like Buffer, Skype, notion, Slack, LinkedIn, all these software product normally use
of feature based premium.
And then we have time based freemium.
So products like Shopify or Audible.
So Shopify is free for 14 days, audible is free for seven days, and these product use a time based
freemium or a time bound freemium where they normally give you a free trial offer for 14 days or seven
days.
Some will give you this free trial offer for a month as well.
If I'll give you a couple of more example of, let's say, other companies who are also using freemium
business model.
Well, you have millions of companies using freemium business model, companies like Air Table, iCloud,
Google Drive, fresh Work, Zoho, Slack, MailChimp, all these software companies and digital app
use freemium business model.