I always thought freemium model is a tough nut to crack. Even though Slideshare, Dropbox etc. are successful examples of leveraging the freemium model there have been questions on the sustainability of freemium business model in general.
In simple terms, freemium model wherein customers get to use a product / service for free and subsequently pay for additional features sounds like a nice idea. You get the customer hooked on to your product / service and then make him to pay for upgrading to a much more advanced level.
However, there have lot of debates on the validity of the same where the sustainability of freemium model businesses has been questioned. On a personal level also, I think the freemium model is risky because the product / service needs two basic things to ensure cash flow
- Mass adoption. The conversion rates of freemium users paying for additional features is marginal so unless there are huge number of users, it is nearly impossible to make any meaningful revenues!
- Kickass Features. Not only the initial freemium offering needs to be sticky enough for the users, there should be ample scope for additional features that users will not mind paying for…
Now these two sound easy but based on a very few companies that succeed, I am guessing execution is not easy job. I for one love how Slideshare leverages the freemium model!
Coming back to the title, ever wondered why Game developers often develop free and paid versions of the game. Especially with a game like Angry Birds, why have the publishers of the game continued to keep the free version of the game. With the kind of popularity, wouldn’t the $.99 sell like hot cakes as well. It does, but then why lose the opportunity to monetize a larger user base who won’t want to spend anything to play a game. Indeed, the free game user base is a goldmine for publishers and the revenues from free-to-play games are sizeable, sizeable enough that they often trump the revenues generated from premium games.
A recent compilation of top 100 grossing games in the Appstore by Flurry highlights some interesting comparisons between freemium and premium games.
Revenue From Free-To-Play Games Vs Revenue From Premium Games
The chart above signifies the revenue potential of freemium games. Infact, from January To June, Freemium games seem to have generated significantly larger revenue than premium games. This shift in revenue contribution might be difficult to generalize over a large period but a 25% jump in free games revenue as compared to paid games does make a strong case.
Virtual Currency/Goods To The Rescue Of Freemium Games
In-game advertising was and continues to be the major monetization approach that most game developers follow for freemium games. Enter Virtual Goods and game publishers have discovered a cash cow to complement the advertising revenues which alone can make it difficult for the game publisher to earn decent revenues.
Virtual Goods might have been in practice for a long time but I think social gaming gave a great boost to the concept as a whole. The premise of virtual goods / currency is simple – you spend real cash to buy in-game upgrades or special items. Who is foolish enough to spend real cash to buy 1000 farm coins in Farmiville or who will spend $.89-99 to cross a level in Angry Birds using Mighty Eagle? I used to think like that but then I am more wrong than right, so no surprises here.
Agreed, the number of users spending money in freemium games is pegged at a meagre 0.5-.6% which from the sound of it looks pittance. Who is going to make any money out of that? Well, do a 0.5% of 250 odd million users of Zynga game and the calculation suddenly looks awesome, isn’t it?
That is the power of the scale where the virtual goods approach can really generate truck loads of money for the game publisher. Moreover, if a user find the game sticky enough to pay real hard cash to stay on top in the game there is a possibility that he/she might spend multiple times making the revenues more than generated through selling the game at a one-time cost as in the case of premium games.
Did you think that the freemium games could generate more revenue than premium games?
I agree with you Mr Agrawal. These freemium games and product makes the customer pay somehow. Reason may be anything. I think, freemium business is a good idea if you have strong concept of providing service which can be targeted to huge customer base.!! :)