New study on freemium marketing strategies demonstrates their limits for creating revenue
Summary
Freemium strategies dominate software product markets, with many if not most applications enticing new users with a free version, then requiring payment for more advanced features. New research published in the Strategic Management Journal in November changes that, with data that suggests this oft-used tactic has its limits for generating revenue, especially for companies trailing in their market category. “Freemium strategies often seem like a natural way of exploiting a network effect,” says Kevin J. Boudreau, an associate professor of entrepreneurship and innovation at Northeastern University, and one of the study’s authors. But in order for a company to use the freemium model to increase revenue, they have to gain enough of a network advantage to tip the market.” Boudreau, along with co-author Lars Bo Jeppesen of Copenhagen Business School and corresponding author Milan Miric of the University of Southern California, created an empirical study using Apple’s launch of the Game Center in 2010 and its effect on 485 gaming app market categories. They found using freemium strategies in markets with strong network effects widened the already large revenue gap between leaders and followers by 55%.
