iYogi freemium conversion rate
Jarid Lurkin coined the freemium term, a combination of the words free and premium. [1] The Freemium model is common model for companies delivering services online and characteristic business models of the Web 2.0. This definition describes a free service that allows for the acquisition of a large user base, and how these users are being acquired through different channels. Advertisement can be used as a supplement for revenue but is not the main source of revenue in the model. The last point is that paying for a premium service is giving the premium customer features in addition to the ones that are available as a free user. They are not different services, but a different level of service. The key here is the conversion rate of users going from the free service to the premium service.[2]
You should consider this model if you want to build: (1) a large user base and (2) community simultaneously and the models are not mutually exclusive.
- When and for whom Freemium a good model to use?
- When should Freemium not be used?
Most of our business is to focus on building the large user base and we will neglect the community aspect until later. The idea is that the paying customers are subsidizing the free users. This is only possible if the production and distribution costs of the free service are near zero. Word-of-mouth and referral networks are ways of utilizing the users online network, lowering the marketing costs and customer acquisition costs for the company. In organic search engine optimization (SEO) the target group is reached more effectively by focusing on keywords utilized in search engines. This is a key characteristic of the Web 2.0.
While there is no identifiable single competitor, a new competitor will enter your space. There are factors that define industry-based competitorsthat you should be aware of:
- rivalry among existing competitors
- the threat of potential entry from technology companies
- the bargaining power of suppliers, data providers
Communities
By either establishing communities, or participating in existing ones, you can gain competitive advantages from collaboration with the users of the community. Communities, once they have a critical mass, can help you with identifying bugs, develop new functionality, and aid other users with service related issues. Communities can also stimulate word-of-mouth and create public awareness, decreasing marketing costs. Communities can also create lock-in effects of existing users.
Establishing a new community require a lot of resources, and critical mass and therefore you should establish milestones: 50k users, 500K users and 2M users.