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Past Issue • Apr-Jun 2014

Freemium Uncovered: The Cases of Music and Mating

Freemium is an increasingly popular online business model, where a user gets a core product or service for free but pays for advanced or premium features. Revenues for freemium sites are largely dependent on premium subscriptions, which are not easily won, making monetisation a major challenge. How do sites convert free users to subscribers and what is the value of premium features to users? Professor Jui Ramaprasad and her colleagues seek to unravel the mystery behind premium subscription adoption and also understand how premium features impact users in the context of online music and dating sites, with surprising results.

The freemium business model merges free models, which we see on commonly used sites such as Twitter and Facebook and are monetised by advertising, and subscription models, which we see on the Financial Times and many other news websites.1 On freemium sites, users can access many of the sites’ features for free. Often, these features are enough to give consumers a nearly complete user experience. However, certain “premium” features are only accessible if users pay a monthly subscription. For example, on Last.fm, an online music streaming site, users who access the site for free can stream songs from the entire catalogue available on the site, but the listening experience is interrupted by commercials after every third song. Those who pay the premium subscription of US$3.00 per month, however, are able to engage in an uninterrupted, advertisement-free music listening experience.

ABOUT THE AUTHORS

  • Jui-Ramaprasad

    Jui Ramaprasad

    Jui Ramaprasad is an Assistant Professor, Information Systems at the Desautels Faculty of Management, McGill University, in Montreal, Canada

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