Thulasiraj Ravilla, executive director of the Lions Aravind Institute of Community Ophthalmology, talks about the highly interesting business model of Aravind providing free eye surgery for the poor in India.
Showing posts with label freemium. Show all posts
Showing posts with label freemium. Show all posts
Monday, January 11, 2010
Monday, November 16, 2009
Generating revenues from mobile applications
Some interesting examples from companies such as Copilot Live, Shazam, Financial Times, and 63336.
Related videos:
Related videos:
- The Future of Content & Telecoms: Flat Rate Content Bundles and Social Media (Gerd Leonhard @ eComm 2009)
- Rory Sutherland on revenues from mobile advertising and accidental business model innovation
- Zong, Super Rewards, PayPal and GMG Entertainment in an interesting panel on Monetization Infrastructure for Social Games
Sunday, September 6, 2009
The Future of Content & Telecoms: Flat Rate Content Bundles and Social Media (Gerd Leonhard @ eComm 2009)
In this presentation from the eComm Conference in San Francisco Gerd Leonhard, a media futurist, author, and entrepreneur discuss the content industry and the use of user data as payment. "In exchange for value we surrender data. I get free music, free videos, free tv-shows, maybe even free software, because I give my data to be sold or given or leased to somebody else." This data Gerd argues creates pictures of people that create enormous value that will pay for the whole process. "One dollar a week, per user, of the internet in the US, will be enough to earn the music industry more money than they make with everything else. One dollar a week. And that is not even me paying the dollar, that is just me saying I'll be part of it, somebody else can pay the dollar"
"The filters for content might even make more money than the content itself"
"The fight for control was a fight for distribution"
"The fight for attention is a fight for trust"
The slides can be found here.
Friday, August 14, 2009
Ning, Pandora, YouSendit, Pinger & Ngcomo in an extensive panel discussion about different Business Models
An interesting and rather long panel discussion on different business models based on advertising, virtual goods and freemium models, moderated by Chris Anderson.
Participants:
Gina Bianchini, CEO, Ning,
Joe Kennedy, CEO & President, Pandora
Ranjith Kumaran, Founder & CTO, YouSendIt
Joe Sipher, Co-Founder & Chief Product / Marketing Officer, Pinger
Neil Young, CEO, Ngcomo
Related videos:
Chris Anderson on Freemium: The First Business Model of the 21st Century
Chris Anderson & Guy Kawasaki debate The Freemium Business Model
Making $1.6 Million in a week for music given away for free
Chris Anderson & Guy Kawasaki debate The Freemium Business Model
Making $1.6 Million in a week for music given away for free
Related posts:
The Freemium Business ModelHow Google makes money
Wednesday, August 12, 2009
Chris Anderson on Freemium: The First Business Model of the 21st Century
A short but content rich presentation about the Freemium Business Model by Chris Anderson, that starts off by quoting five principles from Alan Murray, Deputy Managing Editor of The Wall Street Journal and Executive Editor for the Journal Online:
- The best model is a mix of paid and free content
- You can't charge for exclusives that will just be repeated elsewhere
- Don't charge for the most popular content on your site
- Content behind a pay wall should appeal to niches
- The narrower the niche, the better
“If you don’t make your exclusives free, other people will report on your exclusives, and they will get all the traffic… To reference my last book, The Long Tail, you get the head of the curve, the most popular stuff, that's best to monetize with advertising, and you got the tail of the curve, the niche stuff, a more narrow interest, that is best to monetize with direct payments… Give away the head, sell the tail”
This is very much in line with the results of the report On the outlook for newspapers in the digital age: Moving into multiple business models, by PricewaterhouseCoopers, summarized here.
Related videos:
Friday, July 10, 2009
50 Business Models Built on Free
In his latest book Free: The Future of a Radical Price
Chris Anderson lists fifty examples on free business models organized into three groups, Direct Cross-Subsidies, Two-sided markets, and Freemium. Below you have the list for free, that I hope Chris doesn't mind. Buy the book to get examples for each + the rest of the book (Freemium):
Chris Anderson lists fifty examples on free business models organized into three groups, Direct Cross-Subsidies, Two-sided markets, and Freemium. Below you have the list for free, that I hope Chris doesn't mind. Buy the book to get examples for each + the rest of the book (Freemium):Free 1: Direct Cross-Subsidies - Any product that entices you to pay for something else
- Give away services, sell products
- Give away products, sell services
- Give away software, sell hardware
- Give away hardware, sell software
- Give away cell phones, sell minutes of talk time
- Give away talk time, sell cell phones
- Give away the show, sell the drinks
- Give away the drinks, sell the show
- Free with purchase
- Buy one, get one free
- Free gift inside
- free shipping for orders over $25
- Free samples
- Free trials
- Free parking
- Free condiments
Free 2: Three-party markets - A third party pays to participate in a market created by a free exchange between the first two parties
- Give away content, sell access to the audience
- Give away credit cards without a fee, charge merchants a transaction fee
- Give away scientific articles, charge authors to publish them
- Give away document readers, sell document writers
- Give woman free admission, charge men
- Give children free admission, charge adults
- Give away listings, sell premium search
- Sell listings, give away search
- Give away travel services, get a cut of rental car and hotel reservations
- Charge sellers to be stocked in a store, let people shop for free
- Charge buyers to shop in a store, stock seller merchandise for free
- Give away house listings, sell mortgages
- Give away content, sell information about the consumers
- Give away content, make money by referring people to retailers
- Give away content, sell stuff
- Give away content, charge advertisers to be featured in it
- Give away resume listings, charge for power search
- Give away content and data to consumers, charge companies to access it through an API
- Give away "green" house plans, charge builders and contractors to be listed as green resources
Free 3: Freemium - Anything that is matched with a Premium Paid Version
- Give away basic information, sell richer information in easier-to-use form
- Give away generic management advice, sell customized management advice
- Give away federal tax software, sell state
- Give away low-quality MP3s, sell high-quality box sets
- Give away Web content, sell printed content
- Give away online games, charge a subscription to do more in the game
- Give away business directory listings, charge businesses to "claim" and enhance their own listings
- Give away demo software, charge for the full version
- Give away computer-to-computer calls, sell computer-to-phone calls
- Give away free photo-sharing services, charge for additional storage space
- Give away basic software, sell more features
- Give away ad-supported service, sell the ability to remove the ads
- Give away "snippets" sell books
- Give away virtual tourism, sell virtual land
- Give away a music game, sell music tracks
Free 4: In the book Chris also mentions a fourth type of Free that is not listed as it is not considered a business model: Nonmonetary Markets. An example that comes to my mind is to spend nights writing a blog without advertising to build a reputation, continuously develop ideas and concepts, keep yourself updated in a field, get feedback, and get into contact with smart individuals...
Further reading:
External reading:
Related videos:
Thursday, April 23, 2009
Aravind uses Freemium Business Model to enable FREE eye surgery for the poor
There are an estimated 12 million blind people in India with most cases arising from treatable or preventable causes such as cataracts. In a developing country with limited resources government alone cannot meet health needs of all the poor and the challenges are to make the service accessible, affordable and with high quality.
Aravind is the world’s biggest eye-hospital chain, based in India founded in 1976. Its core principle is that the hospital must provide services to the rich and poor alike, yet be financially self-supporting. It treats over 1.7 million patients each year, two-thirds of them for free.
Aravind's Freemium Business Model:
- Fee for service: 35% of patient care
- Free or subsidized service: 65% of patient care
There are separate facilities for paying and non-paying patients and it is up to the patient to choose where to get the care. The fee based service can include fancy meals or air-conditioned rooms and the paying customers pay well above costs to cover the costs for subsidized and free services. The free or subsidized services are made very cost efficient by proving only the basic facilities that enact a process of social self-selection and create a hurdle for those who can afford to pay to demand free treatment.
To maintain the quality of the care, the same doctors rotate to deal with both paying and non-paying patients.
High volumes
Aravind uses community partners and eye camps to access the poor, something that creates a huge demand for its services. Aravind’s business model is based on the high volumes generated and a surgeon in Aravind performs more than 2000 cataract surgeries a year which is 5 times the number performed by an average Indian ophthalmologist. The large number of performed surgeries creates an expertise and reputation which has lead to Aravind becoming a training center for ophthalmic professionals and trainees.
Aravind is not only a eye-hospital but also
• a social organization committed to the goal of elimination of needless blindness
• an international training centre for ophthalmic professionals and trainees
• an institute for research that contributes to the development of eye care
• an institute to train health-related and managerial personnel in the development and implementation of efficient and sustainable eye care programs
• a manufacturer of ophthalmic products available at low costs
"Aravind’s model does not just depend on pricing, scale, technology or process, but on a clever combination of all of them" The Economist, April 16th 2009
Further reading:
Tuesday, March 31, 2009
Chris Anderson & Guy Kawasaki debate The Freemium Business Model
Chris Anderson & Guy Kawasaki debate and talk about The Freemium Business Model at SxSW 2009, Austin TX.
Related posts:
Related videos:
Value Proposition Versioning
Value Proposition Versioning basically means offering different versions of a value proposition for the customer to choose from. The objective is to charge each customer just as much as he or she is willing to pay for. A common example is books that are sold in hardback copies priced higher initially to customers who are impatient to get the book, while later released as paperback to lower-value customers that can more easily wait.
Versioning works for all kinds of goods and services, and it has become almost a standard in web based products and services even though the marginal costs to distribute a high-end version often is identical to the low-end version. The Freemium Business Model is basically a way of versioning where the free version is provided to create the lowest possible barrier of adoption with the objective to gain a large customer base, build loyalty and trust, and convert some of the customers to fee-based premium versions.
Pricing the different versions
Value is subjective and people attach different values to different value propositions so the challenge is to properly segment users and features such that customers who are able and willing to pay high prices do so. If the low-end versions are too attractive, it may attract some customers who would otherwise pay a premium price for a high-end version. To avoid this cannibalization the relative price difference or the relative value provided can be altered.
Identifying dimensions that are valued differently
The basis for versioning is to identify dimensions that are highly valued by some customers but of little importance to others. The goal is then to develop value propositions to sell to different market segments at different prices. Below is a list to be used to identify potential dimensions from which different versions of a value proposition can be developed. To identify what dimensions that are relevant, each of the different business model components and the potential markets need to be analyzed.
Dimensions to build different versions of a value proposition from
- Annoyance
- Capabilities
- Comprehensiveness
- Convenience
- Delay
- Delivery time
- Experience
- Exclusivity
- Features
- Flexibility
- Functions
- Performance
- Quality
- Rights
- Service
- Speed of operation
- Support
- User interface
How many versions?
This is a highly context dependent question that comes down to what makes good business sense. Too few versions and the customer have limited choice to pay what he or she is willing to pay for. Too many versions and the customer might be confused and the costs for maintaining and offering different value propositions might be too high.
A common approach in everything from drinks at McDonalds to million dollar consultancy projects, is to have at least three versions; one low-end version to advertise and get attention, one very high-end version and one "standard" offer. The rationale for having the very high-end version is to enhance customers’ perceptions of lower-priced products and make the standard version look more attractive in comparison to the very high-end version. One very interesting approach to versioning is The Trent Reznor case study that resulted in $1.6 Million in a week for music offered in many different versions, with one of them being free.
Further reading
Further external reading
Information Rules: A Strategic Guide to the Network Economy
by Carl Shapiro and Hal R. Varian (Chapter 3 about versioning for information goods)
by Carl Shapiro and Hal R. Varian (Chapter 3 about versioning for information goods)Friday, March 20, 2009
The Freemium Business Model
The Freemium Business Model is based on the concept of providing a version of something for free and one or several fee-based premium versions alongside. It is basically a way of versioning where the free version is provided to create the lowest possible barrier of adoption. The objective is to gain a large customer base, build loyalty and trust, and convert some of the customers to fee-based premium versions.
To be considered a Freemium Business Model what is provided in the free version has to be something that can be used in and of itself without necessary paying for something else (in comparison with for example the Razor-and-Blade Business Model). Also, the value provided should not be limited in time, in comparison to for example free expiring trial versions of a software.
Profitability
To be profitable, the Freemium Business Model must create a lifetime value of premium paying customers, greater than the cost to develop, produce, market and distribute what is beeing offered for free and fee. This requires that:
- the marginal cost of production, marketing and distribution of the free version must be very close to zero
- the free version must generate a large customer base
- there must be a conversion from free to fee-based premium versions
- there must be strong control mechanisms in place, to maintain the premium value from being reduced by competition
Low marginal cost of production, marketing and distribution
Value propositions with low or zero marginal costs have traditionally been limited to the transactions of rights. Long before the Internet it was possible for rights holders to provide free copyright or patent licenses at low marginal costs with the objective to gain adoption of a technology or software. With a free license, a licensee could use and sometimes further develop its own technology or software based on the free license, or chose to pay for another license to patents or code relating to improved features, better performance etc.
The primary use of The Freemium Business Model is however on the Internet where it has become very popular among start-ups. The Internet has become a low cost marketing and distribution channel for information and digital products such as software, ebooks, music, videos and virtual goods. Also, customers can be acquired using low cost search marketing, word of mouth and referral networks.
The free version must generate a large customer base
To generate a large customer base the free version must offer enough value so users become regular customers and tell their friends and colleagues to join. The more value provided the higher probability for word of mouth marketing and adoption of the free version. The main difficulty in The Freemium Business Model is to provide enough value to generate a large customer base, and at the same time leave room for incentives for customers to pay for premium versions. Value is subjective and people attach different value to different services so the challenge is to properly segment users and features such that enough value is provided to both free and paying users.
However, what customers find valuable might not be obvious until feedback is given from users of a free version and often the free version is launched long before there even is a fee-based premium version. The risk of launching an early version to test a product or service is of course that the free version is perceived as good enough and only a few customers choose to pay for additional features and services.
Conversion from free to fee-based premium versions
The premium versions have to be so compelling that a portion of the customer base will convert to the paid versions to cover the cost of developing and providing the service. Even though Internet has enabled one click conversions, paying for something that is already provided in one version for free is somewhat counter intuitive. Examples of premium value propositions are:
- Exclusive content
- A version free from advertising
- Decreased delivery time or delay
- New or improved:
- features
- user interface
- convenience
- performance
- flexibility
- service and support
- rights
According to venture capitalist Fred Wilson, the best examples of The Freemium Business Model are when the customer implicitly understands why the premium versions have to cost money, to cover direct expenses for the service provider. An example Wilson mentions on his great blog is Skype and its termination costs on other carriers networks when using its premium services to call out of network.
Lack of control mechanisms
Control mechanisms are rarely mentioned in literature about business models. As I see it creating strong control mechanisms is crucial for The Freemium Business Model to be sustainable. Without control mechanisms, each competitor will offer more free features to win over users until there is nothing premium left for the fee-based version. Examples of control mechanisms relating to The Freemium Business Model are implemented standards such as Real Player and Adobe pdf or having real or perceived switching costs such as Skype, Facebook, or LinkedIn.
The word Freemium
The business model of combining free and premium has been around for some time foremost within the software industry. But the term Freemium was first articulated by Jarid Lukin of Alacra in March 2006, as a response to Fred Wilson's blog post My Favorite Business Model in which he asks for a name on the business model of giving away a version for free.
"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."
Making $1.6 Million in a week for music given away for free
Value Proposition Versioning
Tim O'Reilly on Open Publishing
External Reading:
A collection of 37 Freemium links at www.freemium.eu
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