Freemium, a

portmanteau A portmanteau word, or portmanteau (, ) is a blend of wordspricing strategy A business can use a variety of pricing strategies when selling a product (business), product or Service (economics), service. To determine the most effective pricing strategy for a company, senior executives need to first identify the company's p ...

by which a basic product or service is provided

free of charge The English adjective ''free'' is commonly used in one of two meanings: "at no monetary cost" (''gratis'') and "with little or no restriction" (''libre''). This ambiguity of ''free'' can cause issues where the distinction is important, as it ...

, 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. 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 Free-to-play (F2P or FtP) 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 ...

Origin

The business model has been in use for software since the 1980s. The term ''freemium'' to describe this model appears to have been created only much later, in response to a 2006 blog post by venture capitalist Fred Wilson summarizing the model:

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 Alacra, Inc. is a privately owned American company that provides information and workflow tools to financial institutions, corporations, and professional services firms. The company was founded as Data Downlink Corporation in 1996 by Steven G ...

, one of Wilson's portfolio companies, then suggested the term "freemium" for this model. In 2009,

Chris Anderson Chris Anderson may refer to: Sports * Chris Anderson (baseball) (born 1992), American baseball player * Chris Anderson (cheese roller), 22-time winner of annual cheese rolling * Chris Anderson (footballer, born 1925) (1925–1986), Scottish footb ...

published the book '' Free'', which examines the popularity of this business model. As well as for traditional

proprietary software Proprietary software is software that is deemed within the free and open-source software to be non-free because its creator, publisher, or other rightsholder or rightsholder partner exercises a legal monopoly afforded by modern copyright and int ...

and services, it is now also often used by

Web 2.0 Web 2.0 (also known as participative (or participatory) web and social web) refers to websites that emphasize user-generated content, ease of use, participatory culture and interoperability (i.e., compatibility with other products, systems, and ...

and

open source Open source is source code that is made freely available for possible modification and redistribution. Products include permission to use the source code, design documents, or content of the product. The open-source model is a decentralized sof ...

companies. 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. The freemium model is closely related to

tiered service Tiered service structures allow users to select from a small set of tiers at progressively increasing price points to receive the product or products best suited to their needs. Such systems are frequently seen in the telecommunications field, spec ...

s. Notable examples include

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, and in the form of a "soft"

paywall A paywall is a method of restricting access to content, with a purchase or a paid subscription, especially news. Beginning in the mid-2010s, newspapers started implementing paywalls on their websites as a way to increase revenue after years of ...

, such as those employed by ''

The New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...

'' and by La Presse+. 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

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.

Types of product limitations

Ways in which the product or service may be limited or restricted in the free version include: * Limited features: A free video chat client may not include three-way video calling. Most free-to-play games fall into this category, as they offer virtual items that are either impossible or very slow to purchase with in-game currency but can be instantly purchased with real-world money. * Limited capacity: For example,

SQL Server Express Microsoft SQL Server Express is a version of Microsoft's SQL Server relational database management system that is free to download, distribute and use. It comprises a database specifically targeted for embedded and smaller-scale applications. Th ...

is restricted to databases of 10GB or less. * Limited use license: For example, most Autodesk or Microsoft software products with full features are free for students with an educational license. (See: Microsoft Imagine.) Some apps, like CCleaner, are free for personal use only. * Limited use time: Most free-to-play games permit the user to play the game consecutively for a limited number of levels or turns; the player must either wait a period time to play more or purchase the right to play more. * Limited support: Priority or real-time technical support may not be available for non-paying users. For example, Comodo offers all its software products free of charge. Its premium offerings only add various kinds of technical support. * Limited or no access to online services that are only available by purchasing periodic subscriptions 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 Online Armor Personal Firewall was a firewall originally developed by Australian company ((Tall Emu)), until the program was sold to Emsi Software GmbH (now Emsisoft). The program provides protection on a Microsoft Windows operating system from ...

). 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 The open-core model is a business model for the monetization of commercially produced open-source software. Coined by Andrew Lampitt in 2008, the open-core model primarily involves offering a "core" or feature-limited version of a software pro ...

", in which the unsupported, feature-limited free version is also open-source software, but versions with additional features and official support are commercial software.

Significance

In June 2011, ''PC World'' reported that traditional

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had started to lose market share to freemium anti-virus products. By September 2012, all but two of the 50 highest-grossing apps in the Games section of Apple's

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App Store An App Store (or app marketplace) is a type of digital distribution platform for computer software called applications, often in a mobile context. Apps provide a specific set of functions which, by definition, do not include the running of the co ...

supported

in-app purchases Microtransactions, often abbreviated as mtx, are a business model where users can purchase virtual goods with micropayments. Microtransactions are often used in free-to-play games to provide a revenue source for the developers. While microtransact ...

, leading ''

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'' to conclude that game developers were now required to choose between including such purchases or foregoing a very substantial revenue stream. Beginning in 2013, the digital distribution platform

Steam Steam is a substance containing water in the gas phase, and sometimes also an aerosol of liquid water droplets, or air. This may occur due to evaporation or due to boiling, where heat is applied until water reaches the enthalpy of vaporization ...

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 Free-to-play (F2P or FtP) 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 ...

in nature or were low-quality and never finished development,

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has since added stricter rules to its early-access and free-to-play policies.

Criticism of freemium games

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. 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 ''South Park'' is an American animated sitcom created by Trey Parker and Matt Stone and developed by Brian Graden for Comedy Central. The series revolves around four boys Stan Marsh, Kyle Broflovski, Eric Cartman, and Kenny McCormickand th ...

'' 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. In 2015,

Nintendo is a Japanese Multinational corporation, multinational video game company headquartered in Kyoto, Japan. It develops video games and video game consoles. Nintendo was founded in 1889 as by craftsman Fusajiro Yamauchi and originally produce ...

released two of their own freemium games in the ''

Pokémon (an abbreviation for in Japan) is a Japanese media franchise managed by The Pokémon Company, founded by Nintendo, Game Freak, and Creatures (company), Creatures, the owners of the trademark and copyright of the franchise. In terms of ...

'' series based on other standalone purchasable titles. With the title ''

Pokémon Rumble World is a freemium action game, action video game in the ''Pokémon'' series developed by Ambrella, published by The Pokémon Company and distributed by Nintendo for the Nintendo 3DS. It is the fourth game in the ''Pokémon Rumble'' subseries, and feat ...

'', 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.

Origin

Types of product limitations

Significance

Criticism of freemium games

See also

References

Further reading