Freemium

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In the freemium business model, business tiers start with a "free" tier. Free-tier in freemium business pattern.png
In the freemium business model, business tiers start with a "free" tier.

Freemium, a portmanteau of the words "free" and "premium", is a pricing strategy by which a basic product or service is provided free of charge, but money (a premium) is charged for additional features, services, or virtual (online) or physical (offline) goods that expand the functionality of the free version of the software. [1] [2] This business model has been used in the software industry since the 1980s. A subset of this model used by the video game industry is called free-to-play.

Contents

Origin

The business model has been in use for software since the 1980s. This is often in a time-limited or feature-limited version to promote a paid-for full version. The model is particularly suited to software as the cost of distribution is negligible. Thus little is lost by giving away free software licenses as long as significant cannibalization is avoided. The term freemium to describe this model appears to have been created only much later, in response to a 2006 blog post by venture capitalist Fred Wilson summarizing the model: [3]

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.

Jarid Lukin of Alacra, one of Wilson's portfolio companies, then suggested the term "freemium" for this model.

In 2009, Chris Anderson published the book Free , which examines the popularity of this business model. As well as for traditional proprietary software and services, it is now also often used by Web 2.0 and open source companies. [4] In 2014, Eric Seufert published the book Freemium Economics, which attempts to deconstruct the economic principles of the freemium model and prescribe a framework for implementing them into software products. [5]

The freemium model is closely related to tiered services. It has become a popular model,[ citation needed ] with notable examples including LinkedIn, [6] Badoo, [7] and in the form of a "soft" paywall, such as those employed by The New York Times [8] and by Press+. [9] A freemium model is sometimes used to build a consumer base when the marginal cost of producing extra units is low.

Other examples include free-to-play games – video games that can be downloaded without paying. Video game publishers of free-to-play games rely on other means to generate revenue – such as optional in-game virtual items that can be purchased by players to enhance gameplay or aesthetics.[ citation needed ]

Types of product limitations

Ways in which the product or service may be limited or restricted in the free version include: [10]

Some software and services make all of the features available for free for a trial period and then at the end of that period revert to operating as a feature-limited free version (e.g. Online Armor Personal Firewall). The user can unlock the premium features on payment of a license fee, as per the freemium model. Some businesses use a variation of the model known as "open core", in which the unsupported, feature-limited free version is also open-source software, but versions with additional features and official support are commercial software. [11]

Significance

In June 2011, PC World reported that traditional anti-virus software had started to lose market share to freemium anti-virus products. [12] By September 2012, all but two of the 50 highest-grossing apps in the Games section of Apple's iTunes App Store supported in-app purchases, leading Wired to conclude that game developers were now required to choose between including such purchases or foregoing a very substantial revenue stream. [13] Beginning in 2013, the digital distribution platform Steam began to add numerous free-to-play and early-access games to its library, many of which utilized freemium marketing for their in-game economies. Due to criticism that the multiplayer games falling under this category were pay-to-win in nature or were low-quality and never finished development, Valve has since added stricter rules to its early-access and free-to-play policies. [14]

Criticism of freemium games

Freemium games have come under criticism from players and critics. Many are labelled with the term 'pay-to-win', which criticizes freemium games for giving an advantage to players who pay more money, as opposed to those who have more skill. [15] [16] Criticisms also extend to the way that the business model can often appear unregulated, to the point of encouraging prolific spending.

In November 2014, the sixth episode of Season 18 of the animated TV series South Park aired an episode entitled "Freemium Isn’t Free". The episode satirized the business model for encouraging predatory game design tactics based on an improper business model. [17] In 2015, Nintendo released two of their own freemium games in the Pokémon series based on other standalone purchasable titles. [18] [19] With the title Pokémon Rumble World , Nintendo took a different approach by making it possible to complete the entire game without buying premium credits, but retaining them as an option so players can proceed through the game at a pace that suits them. [19]

See also

Related Research Articles

Freeware is software, most often proprietary, that is distributed at no monetary cost to the end user. There is no agreed-upon set of rights, license, or EULA that defines freeware unambiguously; every publisher defines its own rules for the freeware it offers. For instance, modification, redistribution by third parties, and reverse engineering are permitted by some publishers but prohibited by others. Unlike with free and open-source software, which are also often distributed free of charge, the source code for freeware is typically not made available. Freeware may be intended to benefit its producer by, for example, encouraging sales of a more capable version, as in the freemium and shareware business models.

Shareware is a type of proprietary software which is initially provided free of charge to users, who are allowed and encouraged to make and share copies of the program. Shareware is often offered as a download from a website or on a compact disc included with a magazine. Shareware differs from freeware, which is software distributed at no cost to the user but without source code being made available; and open-source software, in which the source code is freely available for anyone to inspect and alter.

The subscription business model is a business model in which a customer must pay a recurring price at regular intervals for access to a product. The model was pioneered by publishers of books and periodicals in the 17th century, and is now used by many businesses and websites.

Free-to-play video games are games that give players access to a significant portion of their content without paying. Free-to-play is distinct from traditional commercial software, which requires a payment before using the game or service. It is also separate from free games, usually referred to as freeware, which are entirely costless. Free-to-play's model is sometimes derisively referred to as free-to-start due to not being entirely free.

Mobile game Video game played on a mobile device

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Avast Czech security software company

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Pogo.com Web based video gaming service

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Microtransactions, often abbreviated as MTX, are a business model where users can purchase virtual goods with micropayments. Microtransactions are often used in free-to-play games to provide a revenue source for the developers. While microtransactions are a staple of the mobile app market, they are also seen on PC software such as Valve's Steam digital distribution platform, as well as console gaming.

Downloadable content (DLC) is additional content created for an already released video game, distributed through the Internet by the game's publisher. It can either be added for no extra cost or it can be a form of video game monetization, enabling the publisher to gain additional revenue from a title after it has been purchased, often using some type of microtransaction system.

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Open-core model business model monetizing commercial open-source software

The open-core model is a business model for the monetization of commercially produced open-source software. Coined by Andrew Lampitt in 2008, the open-core model primarily involves offering a "core" or feature-limited version of a software product as free and open-source software, while offering "commercial" versions or add-ons as proprietary software.

Pretty Pet Salon is a strategy video game developed by Hong Kong studio Dream Cortex and published by Animoca The game was released on January 26, 2011 for iOS and on May 13, 2011 for Android devices. An HD version was released for the iPad on February 26, 2011, followed by an Android version on May 13, 2011. The iOS versions were taken down for a time on January 15, 2012 but since then the franchise has reappeared on Apple's App Store. Pretty Pet Salon titles on the Android Market and on the Amazon Appstore were unaffected.

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<i>Pokémon Rumble World</i>

Pokémon Rumble World is a freemium action video game in the Pokémon series developed by Ambrella, published by The Pokémon Company and distributed by Nintendo for the Nintendo 3DS. It is the fourth game in the Pokémon Rumble subseries, and features toy versions of at least 719 creatures from the first six generations. The game was first released worldwide as a free-to-start download title on the Nintendo eShop on April 8, 2015, with physical retail versions available in Japan the following November, Europe in January 2016, and North America in April 2016.

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Nintendo mobile games

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History of mobile games

The popularisation of mobile games began as early as 1997 with the introduction of Snake preloaded on Nokia feature phones, demonstrating the practicality of games on these devices. Several mobile device manufacturers included preloaded games in the wake of Snake's success. By the early 2000s, the technical specifications of handsets had matured to the point where downloadable applications could be supported, however mainstream adoption continued to be hampered by market fragmentation between different devices, operating environments, and distributors.

References

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Further reading