Freemium

Freemium is a pricing strategy by which a product or service (typically a digital offering or application such as software, media, games or web services) is provided free of charge, but money (premium) is charged for proprietary features, functionality, or virtual goods.

The business model called shareware has been in use for software (crippleware or freeware) since the 1980s, particularly in the form of a free time- or feature-limited ("lite") version, often given away on a floppy disk or CD-ROM, to promote a paid-for full version. The model is particularly suited to software as the cost of distribution is negligible, so little is lost by giving it away for free – as long as significant cannibalization is avoided.

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

In 2009, Chris Anderson published the book Free, which examines the popularity of this business model. As well as for traditional software and services, it is now also often used by Web 2.0 and open source 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.

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