The freemium model for businesses isn’t new, it’s been around for a while and in it’s present form is particularly popular with many of the Web 2.0 businesses. As a techie and business geek it’s a term I’m used to, but talking to a colleague today I was reminded that there’s still an awful lot of business people that are unaware of the term, so to help them out here’s a quick introduction to the name, model and history of freemium.

What Is The Freemium Model?

The freemium business model is simply offering a basic service for free, and a premium/advanced service with more features for a fee. It effect those paying for the premium service subsidise the service for the free users.

Are There Any Examples Of The Freemium Model In Action?

There are a number of examples of businesses using the freemium model. This blog is one such example, I give away my advice and expertise for free and offer a premium, paid service (business consulting) to those that want it. It’s quite a common approach for Web 2.0 companies, such as Flickr, but probably the best known examples is 37signals. Arguably however the best known and most successful example of the freemium model is Google, though it’s rarely cited as an example.

Where Did The Name Freemium Come From?

The word freemium, which is used to describe this model is a portmanteau created by combining the two aspects of the business model: free + premium. Freemium entered the business lexicon as a result of a blog post by New York based venture capitalist Fred Wilson. On 23rd March 2006 he described 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.

After describing the business model, He asked for suggestions for a suitable name. Within a matter of hours, a number of names had been suggested including freemium which was suggested by Jarid Lukin. A week later Wilson announced his choice in the post The Freemium Business Model saying:

from here on in, I will refer to this business model as the freemium business model.  I hope the name sticks because I love it.

Two and a bit years on I think we can safely say it’s stuck!

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