The Right Way To Run A Freemium Model
Lessons from YouTube, Amazon, & Others
When you visit some supermarkets (or the food courts in certain shopping malls), you usually find a tray of a product that is being sold. They call it a taster. For instance, if it’s a sponge cake that’s on sale, you’ll find small pieces of the cake on a tray for people to taste. The idea is that when you taste it, you might like it & then want to purchase it. This is applied to a wide variety of food & beverages.
Althought initially introduced in the ’80s, technology companies have doubled down on infusing “tasters” to their products in the past several years, which they hope will generate long-term users (or subscribers). This is one of the most important pieces of the ubiquitous ‘Freemium Model’ we see today.
A Freemium Model is basically a business model where a product offers some basic features for free & then other ‘premium’ features at a cost, hence the name, Free-Mium.
The goal of this business model is to transition users from the free tier to the paid tier. You want tasters to become buyers.
I’ve learnt something very valuable about the freemium business model from YouTube. If you’re going to run a freemium model and your key metrics include DAUs (Daily Active Users — the number of people using your app daily), then make sure your free trial is at least 21-30 days.
Anything less than 21 days can easily render your efforts to run this model futile. It simply doesn’t give the users enough time to familiarize themselves with the benefits of your premium features.
I, for example, use YouTube pretty much every day. I listen to quite a lot of sermons on there. I had always seen the ad-popup for YouTube Premium but I paid it no mind. I then saw that I could “taste” it for one month, so I figured, why not?
At the end of the month, I subscribed to YouTube Premium and I haven’t looked back since. Why? Well, prior to this, I didn’t truly understand the immense benefit of watching videos without Ads. Another benefit was that I could now listen to my sermons in the background, meaning, I didn’t need to keep the YouTube app open. Being able to close the app and continue listening to what I was playing helped with conserving battery power.
Now, if the free trial were only 7 days, I wouldn’t have had enough time to internalize all these benefits, so I’d have been more likely to make a quick and less-informed decision to not sign up for the premium plan at the end of the trial; but after enjoying these benefits for an entire month, I couldn’t go back to the basic plan with Ads.
Duolingo is another product that runs on a Freemium Model. I’ve used Duolingo for a while now — although not frequently — however, I have never considered signing up for the Premium version, even despite getting a free trial. This is simply because, the free trial was only 7 days & I hadn’t had enough time to internalise the benefits. I don’t even know what they are.
Amazon has also been able to implement this pretty well with Kindle Unlimited (their monthly subscription service that gives you access to a wide variety of books to read without having to pay for each book). When you get a new Kindle device, they offer you a free trial of Kindle Unlimited for 4 Months. Now, an avid reader who spends a lot of time reading daily may use this for 4 months and at the end, find the value in it. If you read, say, 4–6 books a month, you might find it reasonable to pay $10/month for the subscription, rather than, say, $40 for buying the individual books. Basically, you get enough time to derive value from the offering.
There are many other companies and products optimising the freemium model, such as Deliveroo, Apple Music, and more. One thing they all have in common? A lengthy trial period.
Now, it’s VERY important to reiterate that this almost-only applies if DAUs are part of your key metrics. For example, because I use YouTube daily, I’m constantly reminded of how valuable YouTube Premium is compared to the regular version. Using it daily for an entire month made me more inclined towards susbcribing to the premium plan.
Alternatively, if I used YouTube once a month, then it wouldn’t matter if YouTube offered me a free trial of 6 months, because I wouldn’t have had the time to internalize the benefits.
So, give users enough time (preferably a month) if you’re going to run a freemium model and DAUs are part of your metrics.
Selah.
