Before we dive in, let’s discuss what we mean by freemium platforms.
A freemium platform is one with a base or basic service offered to a customer at no cost. These services then typically offer some kind of premium product or membership that grants the customer more access or a less intrusive ad experience for a monetary price.
A perfect example of this is the music platform Spotify.
Spotify has a free version that anyone can use, but it comes with a lot of restrictions.
For starters, free Spotify has ads every so often, just like a regular terrestrial radio station. It also only allows free users to skip six songs per hour. The premium version of Spotify allows for unlimited access, including as many skips as you want. You’re also not subject to any advertisements.
Spotify launched as a free service in 2006 and started adding premium services as it went. In 2019, the company generated a profit for the first time.
Then there are companies like Dropbox. It offers online storage to customers at no cost — but the kicker is that it doesn’t offer a whole lot of storage. By upgrading to a paid subscription, you get access to more space.
Chase established itself as a great bank for college students by using a freemium model. The bank offers a basic savings account and, while it normally charges a fee for small balances, the account is free to anyone with a linked college checking account for overdraft protection.
You’re probably assuming that the bulk of these companies’ profits come from premium upselling, and that’s not wrong. But there are many ways to create value from freemium customers without going after their money.
Let’s go through them now.