SOURCE: W3i, LLC

February 13, 2009 09:53 ET

Learn How the Freemium/Trial Business Model Can Increase Your Revenue

ST. CLOUD, MN--(Marketwire - February 13, 2009) - The freemium business model can increase your bottom line. In 1865 when King Gillette started giving his safety razor away for free, creating demand for his high-margin, disposable blades, the freemium business model was born. Without using the freemium business model, Gillette would not have built his empire, and it is now a commonly used business model especially in the marketing of digital content.

The freemium business model has many names -- try-before-you-buy, shareware, tiered service, trial -- to name a few. Basically, it means giving something of value away for free, supported by revenue earned from the sale of an upgrade or complimentary product. This is a very common business model in the software industry. Software marketers promote a free version of their software supported by the premium, paid version. The trick is to create the right mix of features, offering enough utility to the free user to create credibility, and promoting highly attractive features that will persuade the free user to become a paid subscriber.

To create profit, the financial model looks like this: the lifetime value of paying customers must be greater than the cost of acquiring and supporting both free and paying customers. Reported conversion rates to the premium version vary by product, but range from .05 and 5%; the average being 2%.

There are several reasons why you should consider a freemium business model. Here are some of them:

   1.  When done right, quality trials build loyalty and trust.
   2.  Reduces risk by giving the user a chance to experience the value of
       the software.
   3.  Expedites a large customer base, increasing network effects and
       efficiencies resulting in:
       a.  more brand awareness
       b.  collective intelligence
       c.  faster product adoption
       d.  a more defensible business model, and
       e.  more efficient marketing, as costs are spread out over a larger
           base.
   4.  The cost of distribution and the support of digital content was
       never lower, allowing this model to increase in popularity.

There are also several reasons why this model has its limitations:

   1.  People value what they pay for and will make more effort to discover
       how it will benefit them.
   2.  It is difficult to cover the acquisition and support costs if only
       2% of those installing your software are actually paying for the
       product.

There are other "free" models that you might consider:

   1.  Give a "desired" product away for free when a customer commits to a
       long-term subscription with you.  The mobile business uses this
       extensively when they give a cell phone away for free if a user
       signs up for a long-term contract.
   2.  Ad-supported free -- Many magazines are free or highly discounted
       because of the revenue-generated from their ads.
   3.  Giving a product away for free while charging for a complimentary,
       high-margin product.  King Gillette had this down to a science.
       Also consider that every time you go into a theater the cost of the
       ticket is subsidized by the profit the theater makes when you
       purchase popcorn and other high-margin snack items.

Whichever business model you choose to pursue, W3i can piggyback with your offer to layer on an additional revenue or distribution stream. Through W3i's Download Network you have the ability to increase distribution and revenue for your downloadable content. By using W3i's proprietary Windows Installation System, Install IQ, you can increase distribution for your download by being one of the value-added software offered during the installation process. Or you can increase your revenue by using the demand for your download to be combined with other value-added software offers during the installation; and you are monetized when the user selects your software as well as the additional software. You can then earn money on 98% of users that would otherwise get away. Software offered through Install IQ converted by as much as 60%. Contact W3i to learn more.

Josh Fiedler is the Business Development Lead at W3i Holdings. As a leader in innovative ways to increase revenue and traffic for downloads, he focuses mainly on downloadable games and utility software.

About W3i:

W3i delivers proven, integrated desktop and browser marketing solutions. With solutions tested and optimized on over 200 million installs -- currently 4.2 million installs monthly, W3i can increase revenue and traffic for downloadable software, applications and digital content or provide a receptive consumer base for customized, targeted distribution programs. W3i's solutions utilize Install IQ, a proprietary Windows installation system and download manager developed by W3i. Install IQ is the first installation system to be certified in the TRUSTe Trusted Download Program. To learn more about W3i, visit www.W3i.com.

Contact Information

  • Press Contact:

    Deborah Manthei
    W3i Holdings, LLC
    Email Contact
    320-257-7571