Archive for the ‘Napster’ Tag

My Thoughts on “Freemium” Business Models

A few days ago, I read an interesting post from Andrew Parker on why freemium business models (users can pay a monthly fee to remove ads from a service) are bad for advertisiers. Here is the money quote:

Advertisers pay a premium in order to reach people in their specific demographic with disposable income. This idea of people paying to remove ads ensures that the audience for your ads are actually CHEAPER than the average internet audience.

I’d never thought about this before, but Andrew is right. Why would an advertiser pay high CPM to reach a customer who can’t (or won’t) pay to remove ads? This is a bit of a catch 22.

That said, I wouldn’t totally discount freemium (no pun intended). I still like the “upgrade to a premium version with more features or unlimited access” business model, as long as you create a premium version that is compelling enough to the customer.

In fact, Rhapsody’s freemium strategy converted me into a customer. Like most people my age, I was used to downloading music for free… Napster was hitting its peak in popularity during my freshman year of college. However, I hated Napster for two reasons: 1) the songs were of suspect quality, and 2) I couldn’t always find what I wanted. So, I decided to try Rhapsody on a recommendation from a friend. I started with the free service, which gave me 25 free on-demand streams and unlimited access to a handful of radio stations. After I used the 25 streams up in 2 days, I decided I was willing to part with $14 a month to listen to all the music I wanted, whenever I wanted it.

Even though there are many flaws to Rhapsody (no user-generated recommendations, no playlist search, nothing from Tool’s catalog…), I am now addicted. I can honestly say I would have never bought Rhapsody if it weren’t for freemium.