Freemium: Online Economic Model

The freemium model is hardly a new idea. VC Fred Wilson has been
talking about it since 2006. The idea that you have a core set of features that are free to all
users, and charge a fee to the smaller subset of users who will want
more advanced features, makes a lot of sense.
But I think for the freemium model to work in today’s
environment, it has be along the lines of the opening paragraph of
Wilson’s post in 2006:

Give your service away for free, possibly ad supported
but maybe not, acquire a lot of customers very efficiently through word
of mouth, referral networks, organic search marketing, etc, then offer
premium priced value added services or an enhanced version of your
service to your customer base.

Rather than launching a service with a freemium model, I think
it’s important to gain a large and passionate user-base first.

One of the keys to this in my mind is the yearly fee. While it might
look nice to offer a service for $3-a-month, that recurring charge is
ugly. I’d much rather pay a still low $36-a-year and not have to
worry about it after that.

The freemium model doesn’t always work. But [...] getting the users
is they key to this. If you can get a ton of them, and get a certain
percentage to be very loyal, they’re more than likely going to be
willing to pay.

Article Link (TechCrunch)