Notes from Freemium/Premium panel

Jesper Ritsmer Stormholt and Jonas Hedman

Jesper Ritsmer Stormholt and Jonas Hedman

Yesterday, I moderated a panel on at Internetdagen 2011 (“The Internet Day”) on ”Freemium or Premium” How new business models on the Internet converge on making more services and content available for free to users and charging for freemium or added services. Panelist were Jesper Ritsmer Stormholt of Google and Jonas Hedman of Copenhagen Business School.

Here are my notes for my introduction to the panel:

Today, successful business models for startup companies as well as established businesses with an Internet presence almost always involve making their services and/or content available for an overwhelming amount of user 24/7 all over the world.

The starting point for these business are that they free for the user to use (“Freemium”). Companies then charge a relatively small amount of users for special services or access to special content (“premium”).

The fact that a small startup by building its services on open source software, hosting it on cloud-computing services such as Google or Amazon and finally marketing and selling its services through social media has dramatically decreased the cost of starting and running a web-based business.

Web-based services can be deployed to a large number of customers all over the world with only marginally added cost to the company for  each new added customer.

As opposed to customers in a physical shop, a web-startup can become profitable, if only a small amount of its user-based business is converted into paying customers.

Accordingly, it is affordable to provide services on a freemium model and only to charge a relatively small number of customers for premium services.

Today, almost all new businesses that do not sell physical products sells access to its services via the web. Through the browser the business allows its users to use the services in a manner that for a large proportion of the users will be sufficient for getting a meaningful value out of the service.

A large proportion of these users end up never  paying the companies for these services. In that sense, the services are truly free. However, users may in fact pay be giving attention (s scarce and economic resource) to ads served by the service providing compnay. But if just a fraction of the users becomes “addicted” to the service, these users are likely subscribe to a premium solution that might involve prioritized traffic, more disc space, more uploads, access to service and support and so on, thus becoming paying .

Also, based on the same principles of free use or access, a growing number of companies are making more of their copyrighted material and content available for free on the Internet.

Making content available on open licences has proven very successful with respect to open source software. Today, however, also other content owners are discovering that sharing text, data, sound, video, photos and so on under open licensing to enable free use of the content, and thereby giving the users the of possibility of sharing it with others.

Such sharing also support new business models. A record company company might find that sharing certain tracks under a Creative Commons licence will serve as an efficient marketing tool for getting customers’ attention to other content where use is covered by normal payable licenses.

Producers of hardware such as mobile phones, tablets and so on have found that making content available that can be accessed for free and even modified on these devices increase the value of the devices and thus give way to higher sales.

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