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I think the freemium model is good for prezi and other kinds of services or software industry. Because nowadays its hard to find a real blue ocean of new market. but there is still some opportunities to create some difference from the competitors. The problem is sometimes there are some products/services may monopoly the market, like microsoft office(word, powerpoint…) may be the standard for business documentation. For the new comers, first they need to attract some people to use it to help themselves to be a new standard in their industry, that’s why a freemium strategy is useful.
about the revenue, i have read a book also written by Chris Anderson, it’s about the pricing strategy, it shows that some product/service could use free prizing strategy to make more users/fans, and then get revenue from another method, like sell cds in a low price and then get money from concerts, maybe prezi can use the same strategy.
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Nowadays, many APPs and software will use freemium pricing strategy, because the use of internet is more and more prevalent. For example, you can connect with internet by phone, computer, ipad, TV and so on. So it accelerate the development of new apps and software, because of competition in this market, the use of freemium pricing strategy can help to entry a new market and attract a lot of users at first.
I want introduce an app that use in China, because the restriction use of Facebook, we develop a substitute app which named Weibo. This firm uses the strategy, because a lot of users use it free, but if you want gain some special features, you should pay for it , for example, if you want have special rights about decorating your own page.
First of all Weibo is a place that you can share your opinion or your life to your friends, and also you can pay attention to big news no matter it is about starts, society, and study, almost everything but under the laws. So people use this app can generate network effect. The app offers users to share their views and communicate with each other and also offers different theme groups , thus people can join this group to learn different knowledge from others. More users, more reputation you can gain, so this can attract more new users to join.
Secondly, Weibo is an experience good, a product that needs a period of use before the customer can determine the value they can derive from it. At first , some people will introduce you the new app ,but you don’t have any idea, you should use it for a period ,and then you will find the value of this app , and in that period ,you will consider to pay if you want gain some special rights, but you don’t want pay at first because you don’t know how much value you will gain from this app.
Lastly, there are many factors to consider when you are evaluating whether to use the Freemium model or not. if your product is not creating great value for its users, no tactic in the world will make Freemium work for you. http://blog.sina.com.cn/s/blog_643196f60100v9eu.html
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As far as I am concerned Prezi has a lot of advantages but some opportunities in order to overcome other challenges. Although we need to survey what facts and variables are related with the success in this context.
First of all, the internet and technological strides are paving the way for most firms in doing profitable by offering services, apps and so forth. Therefore their marginal costs are starkly plunging to almost zero, that is, the firms can profit better if they produce massively whereby the network effects take more importance than ever before. Taking these phenomena into account, the logical next step is to allure the consumers for creating a network. That is the motivation for Freemium and Prezi cleverly solved a need for academic and business people: attractive presentations (Attention Economy is implied here) for audiences who need stimulus to catch message in this more and more modern world.
Prezi has done that and it coped with these challenges in order that nowadays it has become in a recognized application among the target consumers. Notwithstanding, some remarks have to be done about this profits concerns. Prezi must to calibrate when the networks effects are big enough for creating new complementary applications or products, as a Freemium.org advised about the feasibility for freemium model, and locking the customers even more. Regarding the fact that the premium features are tailored towards businessmen who are willing to pay more than students, Prize ought to take advantage of this through the advertising in free version or other alike strategies. Furthermore this firm should lower the storage capacity of the free version to sell extra price or to induce the consumers to move the next subscription level. Another relevant concern is to provoke afterwards a standardization war with Microsoft Office but currently it is not the case because the logical rival is only PowerPoint. So the problem will arise if Prize tries to develop complements towards Microsoft interests as Apple did by iBooks against Amazon.
Summing up, Prezi is a profitable business if and only if the networks effects are fully exploited and it keeps developing new complementary (premium) products which convince consumers from free and premium versions is not that bad after all the fact that they will be locked because of switching costs. A paramount upshot is caused if Prize have success on it: Great reputation and high profit margin in premium offers.
References
1) “Free! Why $0.00 Is the Future of Business” Chris Anderson
2) Freemiun.org
3) “Shopping Patterns and Cross Subsidization” Chen and Rey
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As stated on freemium.org, the freemium model “describes a business model where in you give away a core product for free and then generate revenue by selling premium products to a small percentage of free users.” This model is interesting from a marketing and network effect point of view. From a marketing aspect, freemium model, by definition propose a free product easy to acquire for the client. By attracting a lot of customers that enhance word of mouth effect; equal to free publicity. Once a business has attracted lots and lots of free users, the network effect increases the value of the business. The objective hidden behind this model is to turn free users in getting charged additional features.
The freemium business model is nowadays commonly used in social media such as Skype and LinkedIn but also in online games such as World of Tank where you register for free but once you want to go deeper in the game they start charging you. But not all businesses that implement the freemium model succeed and that due to several reasons. First, a business that picks the wrong market won’t be able to attract enough clients. Second, the additional features must be worth the price, from a client perception. Third, the company should prepare carefully the conversion of free users; otherwise, if it is too obvious they will not fall for it. Finally, keeping the client addicted to additional charged features is a key factor to succeed.
Prezi is a “cloud-based presentation software that opens up a new world between whiteboards and slides”. Based on the figures, 30M Users & 96M Prezis end of 2013, Prezi is doing well since its launch in 2009, being a serious alternative to powerpoint. With around 4% conversion rate, it would indicate that Prezi’s business is successful and most of all profitable.
Concerning Chris Anderson’s statement, I would tend to agree on the content of his statement especially with the increase of e-business and smartphones (3G, 4G) usage. But I disagree with the “form” of this title as freemium model is not completely free ($0.00) otherwise businesses wouldn’t be profitable.
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As far as I am concerned, whatever the market you choose to launch a new product, it’s fundamental to give the opportunity to the consumers to try and expertise your new discovery by themselves. They will make their own opinion, will try all the possibilities the product offers and will be able to weigh the pros and cons of using it permanently. It appears to a lot of product this past few years such as Skype,…but the question remains the same: how far we need to use the features and how much are we willing to pay to use them?
Skype is a freemium program model, just like Prezi, that allows users to make phone calls on internet. User-to-user calls are free, while those to landlines and mobile phones are charged. There are additional features such as instant messaging, file transfer and video conferencing. As you can know, Skype were bought several times, for billions of dollars, over the last six years. Furthermore, its growing notoriety around the world, linked growing active users every days; let us thinking that it’s a very attractive company with large incomes ( around $185 Million in 2009) and a great future potential. It seems Skype succeeded to monetary its charged features while maintaining very competitive prices, like Prezi try to do so
Indeed, Prezi seems to have a couple ideas that let us thought it will become a successful freemium model. The fact that Prezi remains free for young students and lecturers is very eyes catching and allows them to improve their use of the software and to keep working on it afterwards avoiding then switching costs. Prezi make efforts to claim a competitive advantage by offering more and more features for free but, in my opinion, it has to keep some features secret for the consumers and gives them more opportunities to pay for the added value they want to discover…
Whether Prezi’s freemium is a winning model or not is difficult to say with certainty because of its data release. However, looking at its advantages and limits linked with its growing and growing numbers of users, it seems that Prezi looks like a winning product with strong potential for the futur!
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Freemium model seems quite popular these days, as many firms are following this business model, especially through the internet. People get used to find free web technology. Skype, a freemium voice-over-IP service, is one of them. This firm basically provides internet calls for free and charges its other services. There are many other examples as LinkedIn and Dropbox which are used by millions of people.
But what encourage firms to choose the freemium model?
It is possible to adopt this model thanks to the low costs of digital duplication. In fact, digital products have no marginal costs (or very low) which enables companies to provide a basic free service/product funded by the premium version. As said by Chris Anderson [1], one percent of users support all the rest. Because the real goal is to attract “premium users”, understand the ones who pay. The free version allows attracting the critical mass of users, useful to create the network effects. It encourages people to use the product, to realize how much they value it and then to lock them in (thanks to the switching costs).
Freemium model is interesting because it increases the value of service over time. Thanks to the growing number of users, it allows to attract “premium users” (the ones who pay for the service) and also to generate revenues with advertising.
The potential success of freemium depends then on the complementary products which make the model profitable. For instance, in the music industry, the complementary products are concerts, deluxe editions of albums, etc. The “loss leader” (the free version) is usually a product of content (experience good) with a high elasticity of demand and a low marginal cost.
All these factors can explain why it worked so well for Prezi. Indeed, Prezi has now more than 3 million users and is cash flow positive since 2009 [2]. The company also raised 15,5 million in funding from prestigious investors as the event organization TED (it was TED’s first investment in start-ups which can explain all the potential they see in Prezi)[3].
[1] http://www.wired.com/techbiz/it/magazine/16-03/ff_free?currentPage=all
[2] http://techcrunch.com/2013/11/14/online-presentation-startup-prezi-zooms-to-30m-users-and-96m-prezis-hires-apple-google-flip-video-execs-for-global-growth/
[3] http://blog.prezi.com/latest/2009/7/23/ted-invests-in-prezi.html
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I would like to explore the potential source of success to be achieved by Prezi on two fronts: first taking into consideration the pillars of the Freemium model (Network effects, switching costs and fact of being an experiencing good) and, posteriorly, by listing factors related to other natures.
Starting with the aspects explicitly related to the Freemium model. In a first place, the following declarations of Drew Banks, Chief of Prezi’s Marketing Department, caught my attention: (i) “I want teachers to use Prezi, but I want more students to use Prezi” and (ii) “The students graduate, go to companies and they will decide on the tool they will use. In my day, companies used to impose what to use. With the [computing] cloud, the young people say, ‘I use Dropbox, Prezi”. (G1, 2013). Here, one can observe that there is a clear effort of the company toward the amplification of the Network Effects, not only in the present, but also to keep current users for the future.
Furthermore, it is interesting to notice that Prezi has been devoting attention to reduce the switching costs for users already familiarized with Power Point. In additional to the friendly use tool, Prezi makes available several tutorials to facilitate the learning process of those who want to start using the program (https://prezi.com/support/).
Now, presenting additional elements related to the pillars of the Freemium model. Prezi should be observed as more than simple pure competitor of Power Point. Prezi is a software which goes beyond the preparation of presentations. According to Hiroshi (2014) “Prezi can interfere in several professions and generate opportunities for the most attentive people”. In order to illustrate this point, the author presents suggestions about the way that professions that can be leveraged by incorporating the use of the use of tool in their daily activities. Here are some examples:
(a) Photographers: the popularization in the use of digital cameras has led to sharp decrease in the number of people who opt to get their pictures developed. In this context, professionals of this area have the opportunity to reinvent their profession by exploring the bunch of picture tools available on Prezi;
(b) Web-designers: Prezi has not been widely used in the assembly of websites. One can argue that the use of the software can grant a more attractive appearance to the websites developed by those professionals;
(c) Video-makers: that can be a really useful for the creation and video edition;
(d) Journalists: the use of multimedia has not been quite disseminated in journalistic news, which still relies substantially on written communication methods. Prezi can contribute with a more dynamic way of presenting a news by introducing the sequence of events through pictures and videos;
(e) Professors: As Prezi counts with an extensive variety of visual resources, one can expected that teachings can be better conveyed – in comparison to Power Points presentations, for instance – by professor and, thereby, better assimilated by students.
Besides the professional features mentioned, Prezi can also be seen as advantageous over Power Point in some aspects related to personal life. According to Drew Banks, even marriage proposal and a child request for a new dog to his parents were already made through the platform. In both cases, the requestors had their wishes satisfied (G1, 2013). How to image that the same outcome would be achieved through the use of Power Point?
Additional Reference:
http://g1.globo.com/tecnologia/noticia/2013/09/rival-do-power-point-prezi-lanca-site-em-portugues-e-mira-brasil-criativo.html
http://www.administradores.com.br/artigos/carreira/prezi-revoluciona-as-profissoes/75002/
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As some previous commentators have already written, since Prezi does not want to publish its revenues it is rather difficult to find some accurate statistics about their business. However, some websites such as Freemium use what they believe to be good estimations of their rate of conversion, the type of subscription and therefore the potential revenue of Prezi. They believe Prezi’s revenues to come from a 4% conversion rate, a 80:20 ratio between Enjoy and Pro licenses and accounting for a total of $19.6m. Other business operating under the same Freemium model such as Dropbox or Evernote enjoy quite similar rates with 4% and 6% respectively. Since the paid membership is mostly aimed at businesses that want to keep their presentations private, a percentage of 4% can seem like a rather important rate but individuals might be interested too. As explained in the article, Prezi plans on locking users in through that community-belonging feeling and ex-students, which were offered to use it for free, are likely to keep using it once they start working. A conversion rate of 4% is therefore perfectly believable. At least this is what Prezi’s partners believe. Accel Partners and Sunstone Capital have invested $14 millions in Prezi as they expect the conversion rate to keep increasing and believe that the freemium model is indeed profitable. Prezi is also one of the few start-ups to actually generate money as they are cash-flow positive since its second year of activity. Having a partner such as Accel is a highly valuable asset for Prezi as the Silicon Valley-based Venture Capitalist is usually involved in successful transactions such as with Facebook, Groupon, Dropbox, Spotify to name a few.
I also believe that Prezi’s model is viable because of all the reasons cited above but also because I feel like Prezi is quite fashionable among student and that lots of them are getting hooked to it. And since it requires a personal investment to learn how to use it, they are more likely to stick to it than to any other presentation softwares. It means that these students are all potential future professional users.
However, in order for freemium models to be profitable it is highly important to reduce the features of the free version. Otherwise there is a real risk of cannibalization of the paid customers. I believe that is Prezi’s weak spot. Having tried it I feel like the possibilities offered by the free version are more than enough and I personally do not feel the need to pay for a better service.
http://www.forbes.com/sites/victoriabarret/2011/10/18/dropbox-the-inside-story-of-techs-hottest-startup/
http://www.businessweek.com/articles/2013-02-28/as-evernotes-cult-grows-the-business-market-beckons#p3
http://venturebeat.com/2011/12/15/prezi-14-million-in-funding/
When Freemium Fails, By Sarah E. Needleman and Angus Loten, Aug. 22, 2012 6:43 p.m. ET, published in The Wall Street Journal Online.
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In a market that has been dominated by Microsoft’s Power Point for more than a decade, Prezi needed to attract the audience with a new, innovating proposal. Offering the freemium model has probably been the One item that has set them up in the “presentation software” market. As stated on the article, offering the possiblity of using the software for free has indeed coped pretty well with the switching costs sustained when changing from the PPT (PowerPoint) format tothe Prezi one.
According to Brian DeChesare,” former investment banker and founder of Mergers & Inquisitions and Breaking Into Wall Street, educational Web sites aimed at students and entry-level professionals eyeing careers in banking and money management”, who made “7 figure revenue” out of the fremium model business ,( http://www.forbes.com/sites/brettnelson/2013/07/23/the-freemium-model-top-flaws-and-potent-fixes/ ) there are 4 freemium fundamentals: “Choose the right market; distinguish between free and paid content in a way users care about; track the metrics that matter; and create clear “paths” for promising prospects.”
For starters, Prezi is submerged in a market where clients are already paying money for a solution to the problem, as they have to pay for either the Microsoft Office package, or the Keynote app in the case of Mac users (this two represent the biggest competitors). Offering a free solution has indeed turned some heads around and has brought most of the clientele Prezi has to date. Furthermore, Prezi has a simple interface which is much easier to share online, and, if you choose the online free app, you don’t even need to download any package, and can work on any computer with flash player,thus having the advantage of being equally useful on a Mac, Microsoft or Linux computer.
On the subject of addressing clearly the difference between the free and the paid version, Prezi’s paid version mainly offers an offline version together with the possibility of making personal and confidential (i.e. not public) , while the free version only offers the possibility of making public online presentations, (which are downloadable but not editable offline), or trying the offline version for a month. In my opinion, for people using the software who don’t really need confidentiallity on their presentations, the paid version doesn’t make much sense. In a world highly connected to the internet, it is almost always possible to have internet connection to edit/download the presentation, so there’s really no need to pay for a confidential, offline version.
On the other hand, when dealing with big enterprises on which confidentiallty is an issue, Prezi’s offer is much more valuable. Not only does it offer an innovative alternative to presentations, but it is also more visual and intuitive than power point, at least in my opinion.
Of course, the network effect is something that might cause some drawbacks still, because although expanding quickly, the number of users is still not as big as the one on their competitors, and still PPT format is the most preferred one.
In terms of swtiching costs, it really is an intuitive application. Afther the first few times using it, and since its an “experience good”, you learn how to control it quickly and efectivelly, thus reducing the costs of learning how to use it, and, adding this to the fact that it’s free, really makes the transition between other softwares and Prezi really simple. Furthermore, with the Student and Teaching Licenses, Prezi traps these users, and after several years of using their software, the switching costs attached to changing from this software to a different one will be higher, thus making it more profitable for these user to just pay for the premium version and continue to use it as their default software.
All in all, i think their success will really relly on expanding the network of users by word of mouth, so that the network effects really act on their own advantage. After this is accomplished, the best way to migrate the free users (wether students, big firms, or other users) to the premium Prezi, is focusing on providing new and interesting features on the offline version, such that in the future, every PC will want to come equipped with the prezi software, much like most PC’s right now are equipped with the Office pack.
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Launched in 2009, Prezi is an internet-based business who adopted a “freemium” business model. Within five years, they have been able to attract over 30 million of users with a growth of 50 percent in the second semester of 2013 (1). The large amount of users tends to indicate a well-tailored pricing strategy which enables them to become a new reference in terms of virtual presentation software.
The “freemium” business model seems appropriate to internet businesses. Indeed, the latter has to face tough competition due to fast development and people’s reluctance to take time trying and testing new products (2). Therefore, such a model might be an interesting alternative to attract people but requires adapted strategies. Indeed, at the beginning of the business, it is essential to focus on catching as many people as possible in order to create some networking effect. Nevertheless, at some point, free users have to be converted into customers who purchase the product. This conversion will appear when users are satisfied enough with the added value they can get from the “premium” offer. Thus, it is vital for the firm to ensure a suitable trade-off between low and high value of their free product. Indeed, the product has to offer enough value to be attractive but not enough for the customer to be satisfied with the free version (3). Therefore, we can wonder if Prezi’s model is successful. With a conversion rate of approximately 4 percent (4), it tends to show some difficulty for Prezi to convince users to upgrade their version of the software. Plus, cost per user is quite important even though total costs of the firm should not be that high seen their kind of business.
Prezi has a specific price discrimination policy. Indeed, their main goal is to attract people to use their product (via free version) and lead them to definitely adopt the tool in order to make them pay for the service afterwards. The main target they expect to be paid by for their products are the companies. This is why they also promote free versions of their software to students and teachers. Indeed, giving a free access to those specific people might have a positive impact. Teachers will start using Prezi to realize their presentations they give to students. The latter will be educated to watch and then, make its own presentation via Prezi. This means that the new generation of workers will be developing their Prezi knowledge and will keep on using it once they’ll be working. Thus, in the long run, the use of Prezi will significantly increase within companies through this progressive implementation. In the end, a larger amount of companies will have adopted Prezi which will see its revenue significantly increase.
To conclude, Prezi has the opportunity to be successful. Their pool of users is already significant due to their large focus on attracting people but they have to ensure to convert them into customers. In order to do so, they will have to perfectly understand the specificities of their business model and the expectations from their actual free users and customers.
(1) Marketwired, (2013), Prezi surpasses 30 million customers, bolsters business capabilities, http://www.marketwired.com/press-release/prezi-surpasses-30-million-customers-bolsters-business-capabilities-1852412.htm, consulted on 5th of March 2014.
(2) Pulkkanen, A., & Seppänen, M, (2012), Freemium business models in technology product markets, Proceedings of ISPIM Conferences, Issue 23, p.1.
(3) Nelson, B., (2013), The “freemium” model: top flaws and potent fixes, http://www.forbes.com/sites/brettnelson/2013/07/23/the-freemium-model-top-flaws-and-potent-fixes/, Consulted on the 5th of March 2014.
(4) Freemium.org, (n.a), Prezi, http://www.freemium.org/freemium/prezi/, Consulted on the 5th of March.
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Piratemium Business Models
On FREEMIUM.ORG it is described what is and what is not a freemium business model and several successful examples are shown. Freemium is defined as “a business model in which you give a core product away for free to a large group of users and sell premium products to a smaller fraction of this user base.”
By following its definition, I will show how another category of products fits in the freemium concept – pirated goods, or as I will call it the piratemium business model. Maybe for its controversy, pirated products were not included on FREEMIUM.ORG analysis. However, they are probably the primitive ancestor of the freemium concept, even if not intentionally.
In fact, pirated goods can be seen the free version of priced original products. The consumption of the pirated version can have several differences in regard to the original one. It may have a lower quality, it may not have all the possible features or its consumption may be associated with a negative social stigma with the same implications. Therefore, with significantly low marginal costs, a company can be profitable even if pirated versions of its products are distributed for free, as long as there is a segment of consumers who are willing to pay for the original version.
In the case the good in question is an experience good, the pirated version decreases consumers’ search costs by reducing their risk aversion to an unknown product. This consumer sampling effect may end up leveraging sales. Network effects and switching costs follow exactly the same argument as for any freemium product.
The most common examples of piratemium business models can be found in the books, music, movies and software industries. Many companies, authors, bands, etc…, purposely or not, use the piratemium business model, whether to boost sales or just because they cannot avoid piracy itself.
As possible examples, pirated versions of academic books may boost profitable sales of originals to libraries and pirated music may boost sales of concert tickets. Another close example of network effects and switching costs for economics students are pirated versions of mathematical and econometric software that can be freely used by students, who typically have a low willingness to pay for the originals. However, after going to the job market, organizations will opt to buy those products, because their employees will already be used to them. Organizations have a higher willingness to pay for these products, usually don’t want to bear the risk of using pirated versions and will be able to save a bit on training programs.
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Nowadays, the internet world offers a wide range of services that allows consumers to benefit with that. Freemium strategy is an example of a model that implies giving something for free in order to attract at least some customers to pay, in this type of model “free” users are supposedly led to a purchase, caught by the experience of the Free. One of the cons of this type of strategy is that users of these services will prefer the free versions and they will not pay for a premium version if they don’t need it, or if the free version is sufficient for its use.
But we can also point out some pros of this model. Acquiring new users can be extremely challenging and expensive, so they can use the freemium model as a way to acquire more users through crowdsourcing. This allows to attract and win users more cheaply and quickly than before and the costs of crowdsourcing considerably lower. There is another way to use the freemium model, which is the users “pay” for new features through the disclosure and acquisition of new users. For example Dropbox uses this type of strategy that encourages users to disclose the site in exchange for more space within the virtual pendrive. So, the freemium model can lead to various strategies to attract customers, just knowing how to use it to take profit.
Prezi is a tool that allows to make presentations in a creative and dynamic way, differing the common presentations, causing great impact for those who are watching, and then can share with the network of users, which takes advantage compared with PowerPoint. The strategy used by Prezi is having results, since they have exceed, last year, the 20M of users and the ”iPad app has been downloaded nearly 2 milion times”. http://venturebeat.com/2013/03/12/prezi/. In USA, they are also having a great projection through investment by the government in infrastructure for schools using this program. http://www.nytimes.com/2014/03/03/education/new-all-digital-curriculums-hope-to-ride-high-tech-push-in-schoolrooms.html?ref=education&_r=0 .
So, I believe that this kind of strategy that Prezi uses can be viable, but to a certain point. Is necessary to know how far they can take the free version and how to captivate the users to buy the premium version. Otherwise the Prezi can not make profits if only rely on the free version. Other types of applications or networks use as a way to be able to “sustain” the advertising, like facebook, a social network that is completely free and earn millions because of the ads they allow to be posted on their page.
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In the article $0.00 is the future of business, the author describe six different categories of a priceless economy. That is six different manners of doing a free business model. The author tells us that this kind of business is possible due to three-party system. The supplier of the service/product earns money by attracting consumers which are the target of a third part: in the traditional media for example, the magazines are selling readers to advertisers.
Regarding the statement of Chris Anderson, I think that his prediction was quite accurate. When I think of the sites I use on daily basis, I realize that they belong almost all to one of the categories described in the article.
For instance, Facebook belongs to the Advertising category. There is indeed written on their website’s homepage “it’s free and always be” but once you are connected to your profile, you can observe an advertising column on the right side of the screen (note that the ad is changing regarding the pages that you like) which are companies who pays Facebook to put their ad on the website.
Amazon can be put in the Cross-subsidies category: when you attract people by selling products at a non-profitable price with the hope that those consumers will buy an extra something costlier in order to make your profit on the latter article. Of course Amazon is not giving free stuff away but they offer you the shipping costs once your order basket is large enough. Whenever I buy comics on this website, I always take care to order for at least 15€. I don’t think I am the only one, proving that Amazon’s strategy is working well.
Another example can be found in the video game sector. The New Zealand studio Grinding Gear Games has created an online game called Path of Exile which is a free-to-play. The question that you want to ask yourself is “How do they manage to earn money?” adding the fact this very game took about three years of development.Well the answer lies once again in the article. Grinding Gear Games can be put in two categories:
-The first one is the Labor Exchange. Their game becomes more attractive the more users there are because of its Massive Multiplayer Online (MMO) gaming genre.
-The second category in which Grinding Gear Games can be put is the Freemium category. In Path of Exile, they created a virtual market on which players can buy objects to improve their character. Every transaction is a source of revenue for the studio.
To sum up, I think that the statement “$0.00 is the future” is not just hot air. But I am not sure that all the manners of doing a free business model described in the article have a future. For instance, the Advertising technique can become a shot in the dark now that the AdBlock+ plugin for internet browsers remove all the ads that you see on the websites (even the 15 seconds advertise before each YouTube video).
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From my point of view, the success of Prezi is due to several factors. « More than 30 million people across the globe are using Prezi. This growth represents a 50 percent increase over the last six months with more than 1.5 million new people joining the Prezi community every month. As Prezi continues to grow, it has also added new executives with experience at Apple, Cisco and Google » (1).
First, the freemium business model is a good strategy if the pricing is well adapted. This pricing has also the purpose to attract a network as large as possible. To flourish, the model needs to have a large network of users. Freemium is a model that lure easily the customers because it gives a feeling of free until they are locked in a switching cost. The difficulty in this strategy is to find the right balance between the « size » of the free version and the price of what should be paid. The freemium model may fail if the firm can not reach a trade-off between these two effects at play.
Furthermore, I think that an additional feature for the success of Prezi is the « cool factor ». The coolness is an important criterion when consumers have to assess a product or a service, the success or the failure may depend on it. This implies that consumers pay attention to the uniqueness of the service, « both in terms of appearance and utility » (2). Among other things, Prezi has an added value compared with PowerPoint, it can share ideas with people all over the world.
On the contrary, firms can differentiate themselves from others. Beats Music enters indeed a competitive market by choosing not to adopt a freemium model like Spotify did. In fact, Beats does not focus his strategy on freemium but on « a personalized and curated music selection based on notable musicians and powerful technology » (3).
In conclusion, the combination of the freemium model and the network effect may lead to a success but a large network can be reached by a targeted distinctive advantage like Beats Music try to experiment.
References:
(1) Computers, software; prezi surpasses 30 million customers, bolsters business capabilities. (2013). Computer Weekly News, , 384. Retrieved from http://search.proquest.com/docview/1459718946?accountid=12156 ).
(2) S. Shyam Sundar, Daniel J. Tamul, Mu Wu (2014), Capturing “cool”: Measures for assessing coolness of technological products, Int. J. Human-Computer Studies, 72, 169–180.
(3) http://mashable.com/2014/01/21/beats-music-launch/
(4) Daniel Halbheer, Florian Stahl, Oded Koenigsberg, Donald R. Lehmann (2013), Choosing a digital content strategy: How much should be free?, Intern. J. of Research in Marketing.
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Nowadays,freemium model is used for many markets, notably applications for mobile operating systems such as iOs and Android, and online services.In the case of apps,according to http://news.cnet.com/8301-1035_3-57418833-94/freemium-games-are-the-ticket-to-app-profits-study/ , freemium games are wildly popular, with 85 percent of those who are aware of the app category downloading such titles.So,a wide majority of users doesn’t want to pay to play games in their smartphones.According to the same link, a new study released by NPD finds that 40 percent of those who have played an upgradable freemium game have made in-app payments,which means people don’t want to pay at first but if they give it a try and like it.
It is quite important which features are available in the free version of the software for the future purchase.Returning to the mobile games case,in the free version of a freemium FPS(First Person Shooter) game,if just some basic guns are open,the player may get bored of the game and delete it.Alternatively,the game producer can let the player have more fun by the availibility of more guns ,not all,making him want to get the other guns by in-app payments.
This is the same thing in the case of Prezi,users of the free version will purchase the full version if the core features used have enough quality to envisage the switching costs.
To compete with a giant like Microsoft, whose software PowerPoint is the monopolistic power in the presentation software market,Prezi needs to decrease switcing costs.In this market,because of the fact that switching cost of learning how to use the product is not reducible,Prezi is trying to make the consumer think monetary switching cost is zero for a while , so the consumer thinks it is worth giving it a try.
For the ones who are getting bored cause there is no alternative of PowerPoint,Prezi can be a solution with its useful interface,outrageous characteristics and features like collaboration,and with its differenciation strategy (80% of Fortune 500 companies choose Prezi).
However,Prezi seems inefficient compared to Microsoft which offers Microsoft Office for $ 9.99 per month including PowerPoint,Word,Excel,etc.According to its website,different than Prezi,it offers usage in up to 5 computers,7 gb + 20 gb extra storage and 60 minutes of Skype calling credits per month,which is another example of a successful freemium model. So we can see that Microsoft is using the freemium model efficiently by promoting Skype which is one of the most known fremium softwares, by another fremium model which is Office itself.This is an example of how the cooperation of two freemium products can be profitable with the help of indirect network effect and why Microsoft bought Skype in 2011 for $8.5 billion.
It seems like Prezi is doing a pretty good job by doubling its user base, from 10 to 20 million in the past ten months.To be more successful,Prezi can collaborate more with the rival of Microsoft Apple, to benefit from the notoriety of Apple,like Office did with Microsoft.
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Advertizing and freemium strategy are the two new ways for companies to earn money. Among many others, the video games industry (through for example call of duty on PC or Temple run and Candy Crush on mobile gaming) and the communication industry (through whatsapp, skype, etc.) are two businesses using abundantly the freemium strategy. I will develop my analysis of “$0.00 Is the Future of Business” thanks to the video game industry on mobile gaming. According to Davis J. (2012), “seven of the top ten iOS games (sorted by money made) are freemium”. The concept of this technique is easy. The initial download is free. But the gamer has the possibility to buy some content (i.e. levels, collectables, power-ups, etc.) in order to progress faster. The developers are however not sure that consumers will buy them. Indeed, a game can be completed without having to pay anything. Nevertheless, it will take more time and effort. Will the freemium strategy continue on its launch and become a sustainable business model?
The payable contents can be seen as the free cheats that were helping the gamers to progress on traditional games. However, the fact that they are payable can be extremely tricky for the consumer. If he has spent many hours playing and that suddenly he runs out of collectables, paying 0,5 € is worthy in order to not restart from the beginning. Due to the high level of involvement at that time, the consumer is not sensitive to pay anymore. These impulsive buying behaviors explain how developers earn money. People may spend little amounts here and there (mostly) without keeping track of those insignificant expanses. They do not have control on their budget anymore. In consequence, they can potentially spend more money on the long run than if they would have paid an important amount on the spot. Due to this loss of budgetary control from the consumers, it is mostly thinkable that the developers will continue to use the freemium strategy.
The consumers also benefit from the freemium strategy. In one hand, they have access to free games. Using the payable contents is their choice and is not mandatory. In the other hand, if the community of gamers is increasing and that many of them invest in the application, it gives an incentive to developers to upload new versions and perfect the game (in order to attract more and more people). The developers can remodel the game after it came out on the market taking care of the consumers’ preferences. This is a bonanza for consumers but also for developers.
However, freemium applications and games have recently been highly criticized by parents and newspapers. They are complaining on the fact that those applications are encouraging children to spend lots of money in them. Furthermore, many consumers think that the money invested in those applications was not worth it. Is it possible that stricter restrictions will be applied to the games’ publishers in the future?
Justin Davis (2012), The Dark Future of Freemium Games, and How We Can Avoid It, http://www.ign.com/articles/2012/07/20/the-dark-future-of-freemium-games-and-how-we-can-avoid-it, [consulted on 04/03/14]
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Whether Prezi’s freemium model is successful or not is pretty difficult to say with certainty. Indeed, Prezi has never released any financial data over their model.
But, as stated in studies, Prezi has been cash flow positive since at least 2009 and has still some funding in the bank. That information may be an indication on the fact that the freemium business model used by Prezi is an efficient one and has been put to good use. But, as stated before, no official numbers have ever been released on that matter, which makes it nearly impossible to affirm they are profitable enough to call their model efficient.
Another key element in assessing whether a freemium model is efficient or not is to look at the conversion rate – which is the rate of users using the paid part of the freemium solution. Looking at it this way, the efficiency of a freemium model then depends on the rate of user willing to pay for more features, thus bring cash flow into the treasury. If we look at Skype, for example, their conversion rate was of 8% in 2010 and has grown to nearly 15% in 2013. This means that 15% of Skype users pay in order to be able to – for example – call landlines from their computer.
However, Prezi has always declined to share the conversion rate of their software. Therefore, it is not possible to rate their model’s success based on a conversion rate. But, in order to assess whether their model works for them or not, it can be safe (as in minimalistic) to assume their conversion rate would be of about 3%. Having reached over 30 million users, that would mean that 90000 user are actually paying for the services offered by Prezi. Assuming that those user are only paying for the less expensive services offered by Prezi, it would mean that each of them would pay 59$ a year, which would mean that Prezi would be making over 5 310 000$ a year.
Even though those are only minimalistic assumptions, it gives us a pretty clear view on the possible cash flows coming from the Premium part of their freemium model. This would, in my point of view, lead to the conclusion that their model is working pretty well.
In conclusion, even though we do not have enough data to strongly affirm that the freemium business model used by Prezi is working – we do miss data on their actual costs, their conversion rate, … – but I reckon it is safe to say that, from the assumptions made and the amount of users reached by Prezi, their model looks like a winning one.
Sources :
Ingrid lunden (2013), Online presentation startup Prezi zooms to 30M users and 96M Prezis, hires apple, google, Flip Video execs for global worth, http://techcrunch.com/2013/11/14/online-presentation-startup-prezi-zooms-to-30m-users-and-96m-prezis-hires-apple-google-flip-video-execs-for-global-growth/, The Crunch.com
Pkeates (2012), Etude du Business Model de Prezi.com, http://www.elton-pickford.fr/2012/04/etude-du-business-model-de-prezi-com, Elton-Pickford
Prezi, Pricing, http://prezi.com/pricing/
My-business-plan.fr (2013), Décryptage du modèle Freemium : comment ca marche?, http://www.my-business-plan.fr/modele-freemium
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From my point of view the freemium strategy seems to be the best strategy when someone launches a product on internet. Without the possibility to enjoy and try the product for free, it is difficult to attract consumers. I tried prezi last year, but I would not use it if it was not free. Especially for the 3th reason that you mention in this article: it is an experience good. As a student, I don’t want to waste money if it is not valuable. I think it is a great strategy to promote prezi in the university, because student likes gadgets and new stuff (from my point of view), so if they can innovate with prezi for free, they will do. And later, when they will work, if they need prezi, they will buy the desktop version because it is more easy to use and they will be willing to pay for the premium version.
All of the files hosting services on the internet have the same strategy: freemium. We can download the files for free, but the download speed is lower and we have to wait before the downloading (around 60 seconds). We can also buy a premium version (for a week, or a month, or a year…) and we have the fastest speed possible and no time to wait. So with this strategy they can attract a maximum of customers.
I don’t know if we can put the games on internet in the same strategy. Often, we can play for free, but we can buy some extra stuff to progress faster. So in a way it is also the freemium system, I guess because we can play for free or use a “premium” version.
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As in most of the discussions if something is good or not there are pros and cons. For some freemium is costly trap which support freeloaders, for others freemium is the future of bussiness . However, the model is very influential and is becoming more and more popular among many startup companies. This model might be the future, but it is not suitable for every company. It should be used only by those able to provide a product which will not only to attract customers, but will also convince them to convert from free to paying customers.
Prezi is a cloud-based presentation software that opens up a new world between whiteboards and slides, which value exceeds $100 million. The public data available for Prezi is quite limited, so it will be hard to evaluate the company’s success on its financial results. .
However, there are many other evidences that the freemium model works for Prezi. Probably the most convincing is the magnificent number of users, which exceeds drastically every year. Since it was introduced in 2007, it has over 30 million users and 80% of Fortune 500 companies use the presentation templates. As it has free version it is oriented to a wide range of customers, everyone interested can benefit of Prezi’s services. Having the free version allows Prezi to gain ideas, improve the quality and be able to answer clients’ needs. For example the latest version of Prezi adds two new features: 3D backgrounds and fade-in animations. Using this model allows the company to be as close as possible to its customers and to gain from their ideas and needs.Another prove of the success is the company’s focus on globalization. Prezi is launching versions in Portuguese, Spanish, Korean, Japanese.
Furthermore if this company wasn’t so successful they wouldn’t receive so many the different rewards:
2009 – World Technology Award
2010 – European Seal of e-Excellence Platinum Award2013-The CEO of Prezi (Arvai Peter) has been elected the Swedish Entrepreneur of the Year
And you can find many others on their website (http://prezi.com/press/) or read comments like :” The “coolest” workplace” and if this is not a real success?
http://techcrunch.com/2013/11/14/online-presentation-startup-prezi-zooms-to-30m-users-and-96m-prezis-hires-apple-google-flip-video-execs-for-global-growth/
http://venturevillage.eu/prezi
http://prezi.com/about/
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As identified in previous comments, offering products or services below-cost (including for free, or with a subsidy) can, amongst others, make sense from the firm’s perspective in the case of strong network effects, switching costs or experience goods, mostly for promotional reasons. This is for instance the case when it is reasonable to assume that sufficient consumers addressed to with a free test sample or test version of the product will become loyal customers of the premium version(s) of the good where they otherwise wouldn’t, or that won-over customers would promote the diffusion of the product through word-of-mouth advertising. (Another motive for below-cost pricing is predation or monopolization of the market or in the anticipation of economies of scale). In such cases, prices are set below cost in view of higher profits in the future, i.e. are driven by dynamic profit considerations.
There are other reasons for which a firm might want to offer its products at below-cost prices which are based on static rather than dynamic cross-subsidisation. I would like to contribute by introducing two markets, namely, (1) two-sided markets and (2) markets where valuable customer information can be extracted, where below-cost pricing is perfectly possible while using a static analytical framework.
(1) According to the OECD (2009) two-sided markets (or two-sided platforms) are characterized by three elements: (a)There are two distinct groups of customers who need each other and rely on the suppliers in that market (the platform owners) to connect them; (b) there are indirect network externalities between the two sorts of customers, i.e. increasing the number of customers on the one side increases the utility or profits of customers on the other side, cp.; (c) Money transfers between customer groups are not possible.
Night Clubs are a typical example of two-sided markets – the night club acting as a platform for two groups of customers (women and men) to meet and interact;
Profit maximizing pricing in two-sided markets usually requires the platform owner to set different prices to the different sides. Especially, it should set relatively lower prices to the side whose presence is valued relatively more by the other side, because it would thereby create a larger customer base of the valuable kind of customers which would attract more customers of the other kind and increase their willingness to pay. Applied to the Night Clubs example, women are usually required to pay less (or nothing) and/or enjoy some other benefits (e.g. free drinks) because their presence in the club is valued relatively more by the opposite sex. As shown in Armstrong (2006) and Caillaud & Jullien (2003) it is perfectly conceivable that profit maximizing behavior might require subsidization (i.e. negative prices) to stimulate demand on the valuable side (in our example, women) which however increases profits generated from the other side (in our example, men).
(2) In some markets services are offered free of charge, or at a discount in exchange for personal information. For example, you can access a limited number of Financial Times articles (four if I remember correctly) online only if you create a (free) online account, to what purpose you are required to disclose information (country of residence, email address, gender, age, occupation, etc.). Other examples: free apps, free email address accounts. Customer-specific information and consumer information more generally are becoming more important for companies’ profitability as IT advances allow for the extraction, storage and analysis of ever growing amounts of data. Customer information is a key ingredient to profit-maximising pricing strategies (recall that as relevant customer information becomes more detailed, third degree price discrimination converges towards first-degree price discrimination). Needless to say, informational advantages can confer important competitive advantages to firms in which case, information might be crucial for a companies’ survival. Amazon.com for instance, the pioneer in the sales of books and DVDs online, is widely regarded to be best at giving useful recommendations to its customers since it has the most considerable amount of data on customers’ purchase histories to draw inferences from (Arora et al., 2008: 313-314). Information extracted can be of direct use to the company that gathered the information (as in the case of amazon.com or potentially in the case of Nike’s Nike+ app that was scrutinized earlier on this blog and in the case of web advertising companies, such as DoubleClick); it can further be used as a tradable good, as indicated by the emergence of a number of intermediaries specializing in the collection of information form peoples’ internet browsing behavior to the purpose of selling this information to corporate clients (for an early account see Chang et al. 1999).
Shortly, information is (potentially very) valuable, so valuable that, in exchange for it, firms might be ready to give things away for free.
References:
Armstrong, M. (2006): ‘Competition in two-sided markets,’ The Rand Journal of Economics, 37(3), 668-691.
Arora, Neeraj, Xavier Dreze, Anindya Ghose, James D. Hess, Raghuram Iyengar, Bing Jing, Yogesh Joshi, V. Kumar, Nicholas Lurie, Scott Neslin, S. Sajeesh, Meng Su, Niladri Syam, Jacqulyn Thomas, Z. John Zhang (2008): ‘Putting one-to-one marketing to work: Personalization, customization, and choice,’ Marketing Letters, 19(3), 305-321.
Caillaud, B. & B. Jullien (2003): ‘Chicken & egg: competition among intermediation service providers,’ The Rand Journal of Economics, 34(2), 309–328.
Chang, Ai-Mei, P. K. Kannan & Andrew B. Whinston (1999): ‘The Economics of Freebies in Exchange for Consumer Information on the Internet: An Exploratory Study,’ International Journal of Electronic Commerce 4(1), 85-102.
OECD (2009): Two-sided markets, OECD policy roundtables.
For a behavioural economics account of the effects of offering products or services for free see also:
Kamiens, Michael A., Valerie S. Folkes & Alexander Fedorikhin (2009): ‘Promotional Bundles and Consumers’ Price Judgments: When the Best Things in Life Are Not Free,’ Journal of Consumer Research, 36, 660-670.
CEO and co-founder Peter Arvai declines to say how many users pay to use the service and how many are free, or give figures that can indicate engagement on the platform such as wider audience of those who consume Prezis, but in total there are some 96 million Prezis in existence today. (...) Arvai says that it’s cash…
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Show lessCEO and co-founder Peter Arvai declines to say how many users pay to use the service and how many are free, or give figures that can indicate engagement on the platform such as wider audience of those who consume Prezis, but in total there are some 96 million Prezis in existence today. (…) Arvai says that it’s cash flow positive at the moment and is not actively looking for another round. In fact, it’s been cash flow positive since 2009, and still has that funding in the bank, “and we’re adding to it.” The reason for this (I think: remember they don’t share these numbers at the moment) is that Prezi has a healthy freemium business. While you can create Prezis for free online, there are two paid tiers, at $59 and $159 annually, that give users additional features like the ability to create presentations privately, a desktop version and more storage space after the free 100MB allowance. The company has been offering the paid tiers from relatively early on, and it’s that interesting co-existence as a consumer and enterprise product (similar to Wunderlist or Evernote) that is likely behind some of Prezi’s success.
http://finance.yahoo.com/news/presentation-maker-prezi-added-features-201941452.html
According to these two sites, Prezi’s cash-flow seems to be positive and that since year one of their entry. Even if the founder of Prezi doesn’t want to reveal figures about the percentage of paying users, we can deduce that its freemium model is a winning one. I can see a couple of reasons why Prezi’s business model is a successful one:
First of all, Prezi makes it’s products free for teachers and students. When teachers start to push students to use Prezi, those students get used to the program and might get more inclined to use it after their studies. That is the point where people start to pay for that kind of product. With more income and with need for a more professional use of the program, people might be inclined to pay for those services.
Secondly, like google docs, Prezi offers the possibility of working simultaneously on a single presentation, unlike presentations you have to share on dropbox and have to edit each after each other. But unlike google docs, Prezi’s presentations are far more intuitive and sexy. Google’s presentations are very basic and don’t leave much space for interactive models.
The main reason why people would go to a paid version of Prezi is that the desktop version isn’t free and it is the only way to work on a presentation offline. Moreover, the desktop version allows you to export your presentations to PDF files which is impossible with the free internet version.
Finally, only a handful of templates are available with the free version of Prezi. If you need to make quite a few presentations, you’ll quickly come short of templates if you wish to alternate those. And that is also a genius part of Prezi: You can upload your own made template and share them with all the Prezi users. By allowing this, Prezi incorporates the effort of its community to improve its offerings.
Now, I’m using Prezi myself, and I feel there is still to much features available for free users. If I were to give an advise to the owners of Prezi, it would be to make even less features available because, for someone who doesn’t make presentations every week, the free version is more than enough.
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Spotify is a well known online and offline music streaming provider. It also uses the Freemium model and employs the strategies mentioned in the post. It provides music for free with adverts (Spotify Free), but by paying for Spotify Premium the users can listen to it offline and without adverts.This creates high switching costs as the music and playlists are not transferrable to other platforms, as the user does not own the music, but instead has a subscription to listen to music through Spotify. It is also possible to test the Premium version free for one month which gives the user the possibility to experience the good. Spotify has grown fast and through these increased users it has more bargaining power towards the copyright owners, hence being able to provide a better service, but it still does not have the Beatles for instance.
There is however continuous controversies that Spotify doesn’t pay the artists enough, and also the record labels complain. According to some people Spotify will not last as it is not making money (http://www.digitalmusicnews.com/permalink/2013/10/17/notpretty, http://www.hypebot.com/hypebot/2012/10/top-analyst-reviews-spotifys-financials-declares-business-unstainable-chart-.html). Spotify made an operating loss of $61 million in 2011 an $29m in 2010. 2012 was not a good year either as revenue doubled but losses increased to €57.8m. The revenues from subscription rose from €156.9m in 2011 to €368.8m in 2012, and advertising revenues rose from €30.1m to €59.6m. It seems that on more stable and established markets, like Sweden and Norway where the service has been available for about 6 years, Spotify is doing well, but on new markets (e.g. US) it is strugling (http://www.billboard.com/biz/articles/news/digital-and-mobile/5337666/business-matters-spotifys-2012-revenues-more-than). The success in established markets points towards the success of the business model, as the users get accustomed to Spotify they get bored of advertising and are more likely to switch to Premium, but this takes time and a sufficient amount amount of paying subscribers is the key to commercial success. The advertising revenue of the free version does not cover the royalties. Currently Spotify is converting over 20% of free users to paying Premium users which is a relatively high ratio. Spotify believes that this proves the success of the Freemium business model. We must remember that music streaming services are still new, and thus the initial phase of loss making is going on, and thus there is scepticism, but also ways positive people believing in the industry. Lately for instance Spotify has lowered the amount spent on sales in the UK, which might be due to higher network effects and the lower need for advertising the service as it is already well known (http://musically.com/2013/11/14/spotify-ltd-uk-financial-results/).
I believe that the freemium model works if the service is good, as it leads to more people choosing the premium version. But it takes time to convert the users as their switching costs increase slowly as they get accustomed to the service. Until enough paying subscribers are achieved to subsidise the free users the companies are making a loss, so the success depends completely on the relation between the two. Currently Spotify has 24 million active global users and 6 million paying subscribers, and the ratio should increase to become profitable (http://press.spotify.com/us/information/).
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Free Internet goods and services are showing their higher value today. Last week, Facebook bought WhatApps by 19 billion dollars which showing that the value of active user each month almost 4.2 dollars. Meanwhile, Japan’s e-commerce giant Rakuten buys chat app Viber for $900 million to expand digital empire on February 14th.
The profit model for Prize is a kind of “Free + charge”. Free using in the first stage in order to attract new user and training customers loyalty. After the users have deep skills to use Prezi, they will have the switching cost if they want to change to another presentation software. Especially the user who using the “Student & Teaching Licences”, after their several years studying and working experiences on Prezi, they will have high cost of changing another presentation tools and will pay for their continue using.
However, this profit model will take long-term earning cycle for Prize. First, the main users of Prize are students and researchers who have the organization official email addresses which can easily get “student & teacher Licence” on Prize. The main users will not pay for this service for several years if they thought the add value services are not necessary useful for their work. Second, there is no advertising publish on Prezi website. The only source of profit is the licence’s fee from customers. The suggestions for Prezi are adding advertising tab bar or charging for special advertising templates for organization and individual users.
There are several technological problems specific for Prezi. First is Language barriers like the same problems recently for Facebook and other popular global software. The main working language for Prize is English but not other local languages for different using region. Second problem is the networking communication is not smoothly in some countries which affect using experiences, like in some Asia countries. Third, Prezi ca only be used online work which limited modification offline and lost the competitive advantage to Microsoft PowerPoint.
The profit model of free online software is still not clear enough nowadays.The best know methods are attract advertising, supports and purchasing licences.However, there are still some charging area to step into deeply. For instance, Facebook is step into e-commerce business on its free platform by selling independent property products, charging service fee for its free selling platform. Prezi can go to more developing online office service like Google Document in order set larger platform for continue services. There should be more profit models for free online goods and services which need operators to excavate.
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Skype is another excellent example of software using a freemium model that has been struggling a lot to make profit since it was launched 11 years ago. Here is how it works: voice over IP calls between computers are free, including video-conference for up to 2 people, and audio-only conferences for larger groups. Premium services include calls to landlines and mobiles phones worldwide, voice-mail, call forwarding, group video-conference, etc.
However, though more and more popular, it hasn’t been that successful in making profit in the last few years. As the following article explains, it has been changing hands quite frequently: http://www.reuters.com/article/2011/05/10/us-skype-microsoft-idUSTRE7490F020110510. For example, eBay sold it in 2009 almost $1 billion cheaper than it had initially invested in 2005. Skype made a net loss of $7 million in 2010, and yet Microsoft bought it in 2011 for the enormous amount of $8.5 billion.
Microsoft’s investment met a lot of skepticism at the time, and it’s still too early to say if the huge investment will ever be compensated. The following, more recent, analysis argues that there was still no clue that Skype had positive or negative financial impact on Microsoft’s business: http://www.theguardian.com/technology/2013/aug/30/skype-microsoft-acquisition-analysis.
On the other hand, thanks to a very successful network effect, the number of users connecting each month kept increasing from 200 to 300 million, which makes it one of the most popular – if not the most popular – VoIP services in the World. Microsoft’s challenge is thus to successfully monetize this massive user-base which is already a great value in itself.
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Especially for Web-based products , Freemium model is growing constantly. The basic premise behind the model is, by offering to the potential customers a free sample of the service, decreases the barrier for initial experimentation and increases the effectiveness in customer acquisition through the network effect. Then, a portion of these users opt for premium option, and the revenue from this group are sufficient to pay also for Free users, since for large digital products, a part of these incremental costs per user are marginal costs . Companies like Dropbox , Skype , SurveyMonkey , and others adopted this model.
Show lessThe freemium model is frequently used in the start-ups because it eliminates the necessity of paying to use the basic functionalities of the product and “break” barriers of acquiring new users, thus provides a fast entry in the market.
The strategy adopted by Prezi, was a very effective option to acquire users of this software since Microsoft Power Point is the market leader for years and only adopting a strategy with this principle it would be possible to reach a large number of users in a short period of time. Prezi currently has about 30 M users.
At a later stage, this strategy focuses on converting free users into premium users, so, there is a set of features that are only available in premium versions. Only around 4% of the users of Prezi free convert to premium, the reason for the low value of this rate is that the free version is sufficient for other users, in other words the free version offer too many features compared to paid version for most users.
As an initial phase, this model supposes to get as many users as possible and thereby increase the amount of potential future customers, so the Prezi offers a version of the product for students and teachers, i.e., potential future customers. In the future companies will prefer this software because their employees are already adapted to them, i.e., the cost of training/learning program will be lower because they already are familiar with Prezi. For that Prezi has to innovate and found the new market necessities and mostly convert more visitors into customers.
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I like Prezi however they are missing an entire enterprise marketplace they will never penetrate until they license the font software that ships on Apple and MS desktops. (easy transition and compatibility is what hooks everyone)
Nothing like having a branded corporation using Helvetica present their stuff through Prezi and then displayed free fonts everyone has…ughh no go for almost every marketing department or non start up.
Or where 90% of the world creates content on a Mac or PC then when it goes to cloud nothing looks the same anymore.
Dropbox and a handful of others jumped form “start up” to big tech by doing this. Such a simple investment yet they clearly don’t have the visionaries to see it.
Pay a $100,000 a year for the license rights and you;ll have every fortune 500 company drop PowerPoint, customshow or any other presentation software.
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