Free-freemium business model for Wang

Since the dotcom bust of 2002, people have been looking for ways to make profits for internet companies. Up to today, there are still a large number of internet companies can only rely on the investment of VC hard support. As we all know, most Internet companies rely on advertising and fee-based services to make a profit. But for a small internet company with little influence, it is difficult to make profit through the mode of advertisement, most advertisers will choose the platform with bigger influence to advertise. The difficulty of charging users through specific services on the Internet is more obvious. Although it is possible to find a tourism website similar to Ctrip, and some network schools that make profits through online teaching charge for their services, the services offered by such companies are not pure Internet services. How to make a profit for a simple internet company is still a vexing problem.

But the emergence of a special free model in recent years seems to have made most Internet companies see the Dawn. This new model advocates providing a free version first for users to use, before providing a premium version for users to pay for. 2006 Fred Wilson named "Freemium" for this particular business model (Free + Premium).

The history of the Internet of "Freemium"

"Freemium" This way is not the first to appear on the Internet, but in the traditional software industry. The enterprise will provide some free trial version, the user can choose to buy the advanced version of payment. Many well-known software companies are still using this approach, for example, Kaspersky offers an upgradeable free version.

And the first "Freemium" pattern you see on the Internet should be the capacity expansion of e-mail. In the beginning, the user will get a small capacity of the free mailbox, and when the user's mailbox space used to reach the online, the site will ask users whether they can pay to buy a large space and features a rich business mailbox. In recent years, this business model has been further developed. In foreign countries, a considerable number of companies have begun to use this strategy to start making profits. Flickr, a well-known album, is profitable through this pattern. In addition, Disney's Penguin Club, Skype, Trillian, NewsGator, Webroot and other Internet companies are in this way to make a profit.

In the domestic "Freemium" mode has also been developed. Taobao is still implementing its own free strategy, you can sell things free of charge, you can open a shop for free. But unlike before, the current Taobao launched the Wang Shop service. A monthly fee of 30-50 yuan to provide a better shop. This is not too high for sellers who have more than 1/4 months of earnings above 1500 yuan. This model is a typical "Freemium".

This business model of "Freemium" is developing silently in this free internet age.

"Freemium" is the most suitable way to operate the Internet at present

Evernote is an internet company that only set up 1.5. Its service is lets the user take the Evernote as the hand the small note, has any matter can through the computer terminal, the mobile phone and so on the way records in Evernote inside. It can be text, Word documents, PPT, PDFs, and any media you might think of. Evernote can allow users to register for free use, but encountered some kind of advanced services such as expanding their own space, upload a more special file format. It was this simple service that allowed Evernote to earn nearly 80,000 dollars a month in July 2009. This is just a small web site with 1.4 million users and only 2% paid members. This is a classic case of freemium model success.

The "Feemium" model, though just a short start, has shown its immense potential. And by analyzing the characteristics of freemium, we find that it is very suitable for the development of the Internet.

(a) Free is the theme of the Internet

Free is the inevitable trend of the Internet, can not be stopped. The current era is different from the past, users do not have to spend a lot of money to find their own information and services. Hard to give their services to add a pay threshold, will be a large number of users outside the door.

And for "Freemium" this mode, no doubt in the beginning with all the free services, like a large number of user base. This is crucial for an internet company.

(ii) reduced cost of education to users

"Freemium" does not require you to spend a large amount of advertising money to introduce users to the various features of your service, but through the user's free use, so that users can provide you with the service of self-learning and familiarity.

Compared to most of the previous websites through advertising mode to educate users, "Freemium" mode makes it easier for users to understand and learn your products.

(iii) The advantages of freemium contrast to different free strategies

Of course freemium is not the only way to free the Internet. There are currently three free modes to become the mainstream of the Internet, namely advertising mode, cross-assisted mode and the "Freemium" we mentioned (of course, zero marginal cost, Labor exchange, Gift economy, But these three models do not have the obvious profit characteristic.

Advertising mode is the most common way for all users to collect money for advertising advertisers on the site for free. But this model is clearly better suited to companies that already have a certain scale. For the start-up of the Internet companies, not a lot of traffic support is difficult to make advertisers satisfied. And we also know that there are a lot of internet companies on the way to the advertising route, eventually fell halfway.

Cross-assist mode, free for a product, but when a user buys another product, the charge is attached to the product. This is similar to the relationship between the ipod and the itunes, the purchase of ipods can be free to use itunes, but in fact, users in the purchase of the ipod has itunes service costs to the merchant. This mode of course is good, but this requires the company to have a short service chain, can have multiple products for users to use, and products to have close contact, which for small or start-up internet companies is a certain degree of difficulty.

By contrast, freemium's business approach will be much more natural, with a clearer profit point than advertising mode. It's easier to implement than cross-assist mode.

(iv) Cheapest marginal cost

If you want to run your product by freemium this model, you need to consider the marginal cost of your product. With each additional user, you need to increase the cost of serving this user. For the marginal cost of the product is too high, it can not be done in this way, too many free users will make the business costs quickly expand to the extent you can not afford.

For the Internet, the cost of the site is mostly in the initial development cost of the site. And then only low maintenance costs or the cost of buying a server. This allows the cost of each additional user company to be consumed close to zero. This creates an innate advantage in the operation of the freemium mode.

Several key points in the application of "Freemium" mode in internet marketing

(i) Provision of valuable free services

Most of the paid members are converted from free members, and the free function is an important factor in deciding whether or not they will pay. Let the free members feel that your site is valuable and they will be able to pay for the service you are entitled to.

Leave them on the website even if they don't pay. More important than making them a paid member, he will be a free advocate for you. For the Internet Word-of-mouth marketing, if a person left your site, you lose more than a potential user, but a large group of users related to this person. Instead, continue to provide valuable services to these free users, who will become your loyal missionaries, directing a larger number of users to your site, so that you can profit from a larger base user base.

(ii) lock users on your platform

How to lock a user on your own platform is a problem that all companies will encounter. But we also need to be aware that the user Switching platform and services also cost, at least he needs to find a replacement for your service, and the accumulation on your platform will need to clear 0 and start again. So we just pay attention to two points, you can leave the user on the platform.

First, the services we provide need to be unique, making it more difficult for users to find services of the same type or quality. This is to increase the user's search costs.

Second, let users accumulate enough value on your platform. For example, Taobao and Dunhuang nets, although their competitors have launched the same service platform, but the two sites still retain a large number of users. This is because these two sites have a very mature reputation system, so that users in a period of time accumulated considerable value of their own credibility. And most users will not be willing to empty their accumulated reputation for a long time to start again. To put it simply, if you want to change a phone number, you have to consider whether you need to bother to inform all of your co-workers, friends, and family. And when you find out that this is a huge project, you may have given up the idea.

(iii) Promotion of paid conversion rates

There has never been a real free lunch in the world, when a user buys a "free" product or has already paid enough to buy the product from another product. Either the other user has already paid for him. What freemium advocates is to let some senior users pay for the cost of using the product by ordinary users. So how do you make your free user A person who is willing to pay for someone else?

To improve the rate of conversion to pay the first is mentioned, as far as possible to keep users in the site, this can be through the site within the establishment of social relations network and through the use of users to improve the transfer of users to other sites transfer costs.

The other thing is to make your paid service truly reflect the value of paying. Be sure to make sense that paying is a productive value-added service, not a Web site's additional collateral for making money.

Summary

The internet has been developing in China for more than 10 years. At present, including community, video, E-commerce and other large forms of Internet companies started in China. But so far, most Internet companies are still groping for a profit model. and "Freemium" in the beginning of the U.S. success can be given to China's internet companies a revelation, perhaps this way is the future development of the Internet business model mainstream.

In the 2010, China's internet business will be more vigorous development, and more is the era of E-commerce outbreak. It is expected that there will be more examples of such features as Taobao and the Dunhuang net, and the presence of internet companies with good business capabilities.

If you are planning to create an Internet company, consider the freemium business model.

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Car product sense, the current chief product officer of the Dunhuang network. He has received Western education in Britain, the United States and Australia. With several multinational companies, including HSBC, PCCW, NEXT, Microsoft and ebay, the multiple-stereo background has created the uniqueness and acuity of the thinking problem. With more than 10 years of experience working in the Internet, it is a future trend observer. EMBA at Tsinghua University and INSEAD business School.