The internet has come a long way over the last 30 years. At that point, it was just a tiny footprint in the world, used primarily by government and academic institutions.
Nowadays, the internet rules just about every aspect of our lives. It’s also become a great way to make money.
You’ve probably noticed that there are dozens of business models online. Rarely does a website offer a free service. If they do, there’s a good chance that it’s freemium.
You’ll soon realize that freemium isn’t free. Do you want to know how freemium sites make money?
Read on to learn what freemium is and how these web apps make money.
What Does Freemium Mean?
Let’s start with the basics. What does freemium mean? Freemium is a combination of two words: free and premium.
Look around and you’ll find dozens of examples of freemium software. Spotify is an example of a freemium service. There’s a free account and then there’s a premium level that costs about $10 a month.
Slack is another example of a freemium service. With Slack, there’s so much value there, you don’t really need to upgrade your account. You could choose to upgrade to more features, but you don’t need to.
Freemium is a type of business model that businesses of all shapes and sizes use. The main reason why they offer two-levels of the same product is to lower customer acquisition costs.
Instead of investing a ton of money into marketing a premium product that asks people to spend a lot of money upfront, the go for the freemium model.
The freemium model gives more people a chance to try out the software with very little risk. Companies have lower marketing costs and more customers. For businesses, it’s much easier to keep and upgrade a freemium customer than a customer who pays from the outset.
Those premium customers are much more costly to replace, too.
How Do Freemium Apps Make Money?
The freemium model isn’t limited to two-tiered premium and free versions of a product. There are a lot of ways that a freemium web app can make money. Let’s take a look at some of the common business models of freemium sites.
In-App Purchases
Sites can make money through the use of in-app purchases. This is used a lot with mobile gaming apps, where players can purchase coins or more plays to keep playing.
It can also be used in other ways. Let’s say that you wanted to convert a JPG file to a GIF file. Some sites would let you do that a couple of times and then charge you if you wanted to use the program again.
A la Carte Features
There are developers that try to be committed to keeping the costs as low as possible for customers. What they’ll do is that they’ll have a base level product, which is free.
They’ll then offer a full menu of features, but each feature costs more money. That’s usually fine if you want one or two features, but if you need five, the costs can skyrocket.
That model is kind of like the airline business. You have a base cost for your flight. However, if you want more during your flight, you’ll have to pay for everything individually. A pillow a few bucks, a meal costs money, checking luggage costs money.
That only works when the customers know what they’re getting themselves into. Otherwise, it’s just a frustrating experience because the customers can feel like they’re being nickel and dimed for every little thing.
Advertising
There are apps that would much prefer to have their software available for free. That makes it much simpler for users.
Yet, there has to be a way to fund improvements and future development and support. Advertising is a good way to do that. The product or service is still free for customers to use and the developers are rewarded for their work.
We touched upon this earlier when talking about Spotify. Spotify actually has several ways to make money. They make money when people upgrade to a premium membership.
For those who don’t want to upgrade, they have to listen to music with ads. Spotify is going to make money one way or another.
Crowdfunding
Crowdfunding is a good way to fund the initial development of the business. The thing to remember is that the money is going to run out eventually unless the developers are constantly crowdfunding.
That’s not a terribly sustainable model for the long term.
Leave the App Alone
You’ll see this a lot with mobile apps, where the app developer releases the app hoping to make money off of ads and upgrades.
Since they didn’t make money right away, they stopped developing the app and stopped supporting it. An app that’s supported is going to be vulnerable to hacking. That will leave end-users dealing with potential device viruses.
Freemium Isn’t Free
When the internet first became a thing, it seemed like everything was free. That had to change as business costs increased to develop and support software.
Businesses of all kinds have had a hard time trying to meet customer expectations to keep costs low while running a profitable business. The best way to bridge this gap was to offer freemium software.
While freemium sounds free, you have to know that freemium isn’t free. Good software is worth something and you have to realize that people are running a business. There are many ways that freemium providers make money.
They can crowdfund their software, make money from ads, offer upgrades, or you have to pay a la carte for certain features.
Now that you know more about how freemium software works, give this freemium site a try to convert any document or file. Not sure what to try? Try converting a PDF file to DOCX file. After all, it’s free.