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.
The business model has been in use for software since the 1980s. The term freemium to describe this model appears to have been created much later, in response to a 2006 blog post by venture capitalist Fred Wilson summarizing the model: [3] [ failed verification ]
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. Notable examples include LinkedIn, [6] Badoo, [7] Discord, [8] and in the form of a "soft" paywall, such as those employed by The New York Times [9] and La Presse+. [10] 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.
A freemium model is sometimes used to build a consumer base when the marginal cost of producing extra units is low. Thus little is lost by giving away free software licenses as long as significant cannibalization is avoided. 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 ]
Ways in which the product or service may be limited or restricted in the free version include: [11]
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. [12]
In June 2011, PC World reported that traditional anti-virus software had started to lose market share to freemium anti-virus products. [13] 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. [14] 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. [15]
Freemium games have come under criticism from players and critics. Many are labelled with the derogatory 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. [16] [17] Criticisms also extend to the way that the business model can often appear unregulated, to the point of encouraging prolific spending. Freemium games are often designed in a manner where players who are not actively using premium features are actively frustrated, delayed or require much larger investments in time required to acquire currency or upgrades.
In November 2014, 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. [18] In 2015, Nintendo released two of their own freemium games in the Pokémon series based on other standalone purchasable titles. [19] [20] 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. [20]
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.
A massively multiplayer online role-playing game (MMORPG) is a video game that combines aspects of a role-playing video game and a massively multiplayer online game.
Shareware is a type of proprietary software that is initially shared by the owner for trial use at little or no cost. Often the software has limited functionality or incomplete documentation until the user sends payment to the software developer. Shareware is often offered as a download from a website. Shareware differs from freeware, which is fully-featured software distributed at no cost to the user but without source code being made available; and free 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 or service. The model was pioneered by publishers of books and periodicals in the 17th century, and is now used by many businesses, websites and even pharmaceutical companies in partnership with governments.
Free-to-play video games are games that give players access to a significant portion of their content without paying or do not require paying to continue playing. Free-to-play is distinct from traditional commercial software, which requires a payment before using the game or service. It is also separate from freeware games, which are entirely costless. Free-to-play's model is sometimes derisively referred to as free-to-start due to not being entirely free. Free-to-play games have also been widely criticized as "pay-to-win"—that is, that players can generally pay to obtain competitive or power advantages over other players.
A mobile game is a video game that is typically played on a mobile phone. The term also refers to all games that are played on any portable device, including from mobile phone, tablet, PDA to handheld game console, portable media player or graphing calculator, with and without network availability. The earliest known game on a mobile phone was a Tetris variant on the Hagenuk MT-2000 device from 1994.
Pogo.com is a free online gaming website that offers over 50 casual games from brands like Hasbro and PopCap Games. It offers a variety of card and board games to puzzle, sports and word games. It is owned by Electronic Arts and is based in Redwood Shores, California.
In-game advertising (IGA) is advertising in electronic games. IGA differs from advergames, which refers to games specifically made to advertise a product. The IGA industry is large and growing.
Microtransactions (mtx) refers to a business model where users can purchase in-game 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.
Companies whose business centers on the development of open-source software employ a variety of business models to solve the challenge of making profits from software that is under an open-source license. Each of these business strategies rest on the premise that users of open-source technologies are willing to purchase additional software features under proprietary licenses, or purchase other services or elements of value that complement the open-source software that is core to the business. This additional value can be, but not limited to, enterprise-grade features and up-time guarantees to satisfy business or compliance requirements, performance and efficiency gains by features not yet available in the open source version, legal protection, or professional support/training/consulting that are typical of proprietary software applications.
A revenue model is a framework for generating financial income. There can be a variety of ways for revenue generation such as the production model, manufacturing model, as well as the construction model. A revenue model identifies which revenue source to pursue, what value to offer, how to price the value, and who pays for the value. It is a key component of a company's business model. A revenue model primarily identifies what product or service will be created and sold in order to generate revenues.
The open-core model is a business model for the monetization of commercially produced open-source software. 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. The term was coined by Andrew Lampitt in 2008.
AnyMeeting, Inc. is a provider of web conferencing and webinar services for small business that enables users to host and attend web based conferences and meetings and share their desktop screen with other remote users via the web. AnyMeeting is a web-based software application accessible by users via a web browser. This method of software delivery is commonly referred to as Software as a Service. The company was founded in 2011 and backed by Keiretsu Forum angel investors.
My Little Pony: Magic Princess, known as My Little Pony: Friendship Is Magic between April and September 2017, is a 2012 video game developed and published by Gameloft for iOS/iPadOS and Android and based on the animated television series My Little Pony: Friendship Is Magic. Targeting children aged 5 to 12, it was released on November 8.
Real Racing 3 is a 2013 racing game developed by Firemonkeys Studios and published by Electronic Arts for iOS, Android, Nvidia Shield and BlackBerry 10 devices. It was released on iOS and Android on February 28, 2013, under the freemium business model; it was free to download, with enhancements available through in-app purchases. It was considered that it had one of the best graphical experience at that time. Over time and despite an expensive virtual economy ingame, the developers began to tolerate the use of playing with time zones in order for the players to watch unlimited ads to get free gold.
Pokémon Rumble World is an action video game in the Pokémon series developed by Ambrella and published by The Pokémon Company and 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 freemium, free-to-start download title on the Nintendo eShop on April 8, 2015, with complete, physical, retail versions available in Japan the following November, Europe in January 2016, and North America in April 2016.
Video game monetization is a type of process that a video game publisher can use to generate revenue from a video game product. The methods of monetization may vary between games, especially when they come from different genres or platforms, but they all serve the same purpose to return money to the game developers, copyright owners, and other stakeholders. As the monetization methods continue to diversify, they also affect the game design in a way that sometimes leads to criticism.
Nintendo, a Japanese home and handheld video game console manufacturer and game developer, has traditionally focused on games that utilize unique elements of its consoles. However, in the early 2010s, the company saw several successive fiscal quarters where they were running at an operating loss. This financial turmoil prompted a shift in strategy to enter the mobile gaming market with the aid of mobile platform development partner DeNA, using mobile titles as a marketing tool to entice that audience into purchasing Nintendo's dedicated video game hardware.
Microsoft 365 is a product family of productivity software, collaboration and cloud-based services owned by Microsoft. It encompasses online services such as Outlook.com, OneDrive, Microsoft Teams, programs formerly marketed under the name Microsoft Office, and enterprise products and services associated with these products such as Exchange Server, SharePoint, and Viva Engage. Microsoft 365 also covers subscription plans encompassing these products, including those that include subscription-based licenses to desktop and mobile software, and hosted email and intranet services.
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. In 1999, the introduction of the i-mode service in Japan allowed a wide variety of more advanced mobile games to be downloaded onto smartphones, though the service was largely limited to Japan. By the early 2000s, the technical specifications of Western handsets had also matured to the point where downloadable applications could be supported, but mainstream adoption continued to be hampered by market fragmentation between different devices, operating environments, and distributors.
Some companies have only a single version of their software, while others follow an "open core" model, providing a community release of the core version, and offering proprietary premium features us- ing a commercial license.
