The ‘freemium’ trap: don’t get caught out
Freemium services have become big business online in recent years, but this hybrid business model could be costly.
Back in the mists of time (i.e. the early Noughties), online services were either free, or paid for.
However, these two business models both posed challenges at a corporate level.
An entirely free business model typically relied on advertising, but advertisers tended to shun new or modestly supported enterprises in favour of high-profile, high-traffic platforms.
Asking consumers to pay up front for a service they might not like (or use regularly) was also unpopular, even though the purchase price would cover development and maintenance costs.
Many platforms and services wanted a hybrid model, combining the benefits of both the options outlined above.
Fifteen years ago, the term ‘freemium’ was coined to describe any product or service which was initially free but subsequently incurred a cost.
This was one year before Apple launched its inaugural App Store, with Google’s Android Market following soon afterwards.
Many of the millions of apps available in these stores adopted freemium services from the outset, embedding the concept in popular culture.
Pay to play/work/read/listen
A freemium product or service costs nothing at the outset. You may have to register an account, but initial interactions with the platform, app, game or service won’t incur any costs.
It’s normal to register a payment method during the initial setup – a credit or debit card, or a service like Apple Pay.
Some freemium platforms provide a certain amount of content without charge, hiding the rest behind a paywall.
This is the model adopted by The Times, which allows registered users to read two articles a week online, before blocking any subsequent content unless payment is provided.
Most freemium models rely on encouraging consumers to aspire to more than the basic version provides.
Online games like Candy Crush Saga embody this. You can play for free until that day’s turn allocation is used up. More turns can be bought at any time, along with other bonus content.
In terms of productivity software, it’s common to install the basic package and then discover advanced features are only available with a full subscription.
And those expenses quickly spiral. Witness the controversy surrounding loot boxes – effectively in-game gambling, where you purchase a mystery item that rarely justifies its cost.
Penny wise, pound foolish?
Firstly, don’t give children the ability to upgrade freemium services without parental consent. It’s possible to spend £1,000 in a week on loot boxes alone in a single online game.
Always consider whether it’s necessary to buy additional features or storage. Would the basic service be sufficient if you scaled back activity, or put up with limited access?
There may be deals that reduce the cost of upgrading. Seek out discount codes, lapsed-user return incentives and time-limited offers.
If a freemium platform charges for individual purchases (rather than a one-off upgrade subscription), consider setting a self-imposed limit on daily or weekly expenditure.
Finally, if costs are becoming punitive, investigate competitor platforms which don’t require payment. You may have to put up with ads, but at least it won’t cost you anything.
