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The rise and decline of the freemium business model

1 freemium Unsplash
(Photo: Unsplash)
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AMMAN — Advertisements have existed since the dawn of man, with the original ads for products, movements, and leaders appearing in city centers in the form of town criers yelling out to the public and informing them of whatever item they were peddling. اضافة اعلان

Fast forward to the 20th century — cable television advertisements are booming, and competition for airtime is heating up. This is where brilliant marketers have developed a concept that, to this day, continues to permeate many industries and product line-ups around the world — the “freemium” model. 

Jared Lukin, a provider of corporate information and workflow tools, coined the term back in 2006 and pushed his ideology across the digital landscape. Freemium refers to a product being provided to a customer for free — albeit in a limited functionality. If a customer was satisfied with features that they were able to use, they could then purchase the full product or subscription to continue use without interruption. 

This new methodology of offering a product for free to get users hooked on a company’s software or service is now seen across every industry, and almost everyone uses at least one application built around this business model. 
However, while freemium may sound great in theory, it comes with its own truckload of downsides — and in this article we aim to explore every angle of this business model and identify whether or not the model can and should continue to exist in its current format, as well as what alternatives may already exist or come to fruition in the foreseeable future. 

When it’s free, you are the product 

As discussed in a previous data harvesting article, it is no secret that there is no shortage of apps that seek to gather an inexcusable amount of data about you, your actions, your interests, and your geolocational whereabouts as this data can be used in a multitude of ways to rake in a significant profit. 
While it’s highly unlikely that most freemium companies ever distribute your data to alternate interested parties or do anything overtly malicious with it, almost all freemium apps are dedicated to extracting all the data that they legally can to identify how you relate to said app and push you to make a purchase. 

Additionally, some larger app developers have agreements with their partners through which they would be able to mass collect data throughout all of their pushed apps in order to cross-target individuals on other apps with said information. 

Grey engineering

In app and web development, the term “grey engineering” is a term that is often used to define design decisions that create inconvenient environments on a platform or app for its users in order to push the users to perform a certain action. 

This type of development is, more often than not, highly effective, provided that the tool is valuable enough to a user. 

It’s partially our fault 

Unlike a physical product that you can buy at your locally grocery or coffee shop, apps are intangible — and according to studies, intangible products generate an increased amount of hesitation in users’ minds. 

An example of this would be your local coffee brewery that offers a fantastic shot of espresso in the morning. At the cost of JD2, you are able to get a tangible boost of energy for the rest of your day. On the flipside, an app may offer many time-saving features, however users might be more hesitant to make a purchase without actually experiencing the features themselves. 

It is at this point that freemium makes sense — it gives users the ability to test the product before they finalize a purchase, akin to trying out a dress or a t-shirt at a clothing store. However, many smaller companies that utilize the freemium business model often do it with the aforementioned grey engineering in focus. 

Small companies have little to no opportunities to put up large marketing plans, go deep into debt, and prolong the growth of revenues in order to create an easy to use app for free. 

All or nothing

When we download an app that operates under a freemium pricing model, even if we are disappointed with its performance, our only direct cost of using the app becomes the time and bandwidth we used to download and run the app. 

However, paid apps that feature no freemium models are under significant pressure to perform. If an app is bought and deemed sub-par, or worse yet, an outright scam by users, this can lead to significant troubles such as refund demands, online reviews, and in some cases legal lawsuits against the developers. 

As a result of these threats, developers often find themselves deploying an app under a freemium model in order to ensure that no legal liability is held. 

The freemium road ahead 

As more companies choose to release apps under the freemium business model, it is clear that Apple and Google have begun hammering down on those that tend to find ways to either trick their users into purchasing goods on apps that do not match their value, or those that are seeking to make a quick buck with unconventional grey engineering methodologies. 

As a result, more start-ups and small-time developers have begun seeing the light in providing true value to their consumers through their freemium offerings all the while accepting that they will most likely not gain any meaningful monetary benefit from the development of said apps for the foreseeable future. 

It appears as if Sales as a Service model (SaaS), has become the answer to the freemium model. Many companies are turning to subscription models rather than full on payments in order to give their users an opportunity to spend less in the short term. 

The future lies, according to consumer research groups, into hyper-fragmentized segments potentially going as far as paying for per-day use in order to maximize value for their customers. Interestingly enough such payment solutions are popular in China, where everything from video games to video editing software is payable in hourly increments.  

If you’re an app developer, and are looking for a proper way to monetize your future unicorn app — consider offering variable fragments of timed subscriptions, providing users with more flexibility as well as full access to the platform you seek to monetize.  

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