Management Mobile Marketing

Building a Successful Freemium Model

For a lot of people, the digital era has opened up a vortex of unlimited information, entertainment, and digital tools. And for a lot of these people, all of these resources should be free. People rarely pay upfront anymore, and a lot of these services offer”free trials” before imposing a paying service, like Netflix’s free month or Amazon Premium. This gives consumers a taste of the product, making it easier for them to decide to buy.

The Freemium model: what is it?

These last few years, a new model has emerged: the Freemium. We’ve been hearing about it a lot when talking about apps or games on mobile phones, but it has existed for much longer than Smartphones. Runescape, an MMORPG (massive multiplayer online role-playing game), has allowed its players two kinds of account, a free account or premium account, long before it was cool.

Xbox One

cc 2014 Claire Roversi

But what exactly is a freemium model? If you’re a South Park fan, you might have seen the episode “Freemium isn’t free” (6th episode of the 18th season), which satirically explains how the freemium model works. If you haven’t seen the episode, a freemium model is when you give the product for free and sell enhancements to make the experience of consuming the product more enjoyable. One example is Candy Crush that is free to download but you can only play five times at once. If you want to play more, you have to buy “hearts” with actual dollars. Candy Crush has many more enhancements that you can buy while playing and it works. In 2014, players spent $1.3 billion on enhancements in Candy Crush. It is also best if these enhancements are consumables, so that the player continues paying indefinitely for them.

So, now that we’re clear on what a freemium model is, what are the elements that make up a successful freemium strategy and what are the limits?

A Freemium Strategy

A freemium mobile game characterizes itself by the fact that signing up or downloading the app is free and some of the basic actions available to the user are free. Users are much more likely to get drawn into the game if the entry fee is null. But drawing the user in is not so easy. Many free apps are downloaded everyday but many of those are deleted and uninstalled before the user has even paid a single cent. Users can decide very quickly if they like a game or not.

This has a serious impact as to how the game is made. The user retention is much lower for freemium games than for games you buy and download. Once a user has paid for the product, they are much less likely to stop using it than if they haven’t paid for it. A freemium product has to retain the attention of the user. Even if the basic actions bring no money, they still have to be as attractive and as good as the paying enhancements. This means the free portion of the product has to be of great quality in terms of graphics, user experience and interface.

Games like Candy Crush or Angry Birds for example, seem to have mastered this aspect: the games are beautiful, and there is an encouragement system, where the player is encouraged and congratulated for good results (“Sweet!” and “Tasty!” animations in Candy Crush. It doesn’t seem like much, but it works). The first few levels are easy, and the game makes the player feel good about themselves. Once the player is engaged in the game thanks to these mechanisms, they will be more likely to pay when the game becomes harder.

Indeed, one of the levers the Freemium model pulls on is frustration of the user. The user has to feel like they are frustrated. In Candy Crush, needing only one move left to finish a level is frustrating. The user might pay for that extra move to stop feeling frustrated. In Clash of Clans, having to wait 8 hours for a building to be built is frustrating. The user might pay to have that building built right now. The thing is, the frustration stays: once you’ve paid for one building, why don’t you pay for another?

Many users will use the product without paying a cent. Some will pay only a few times and continue using the product because of the sunk costs. Some users will pay a lot of money for the product. They are called whales and they are the type of users the freemium model tries to find. In most freemium models, there is no limit to how much you pay and it is done on the spot. In games, it is usually done with a type of fake currency, to remove the pain of paying.

Average Revenue per Download for games using the Freemium model

Source: Distimo, 2013

Whales are not found by accident. Studies can tell you how to find the whales according to what your product is. If you are in the mobile gaming industry, your best strategy to find whales is to tap into the Korean or Japanese markets. They are the two countries where the population pays the most for mobile games in the world. The Japanese also spend four times more time on games than Americans and spends three times more money than an American.

Time spent in Games per active user Source: APP ANNIE, 2015

 

Limits

Freemium has its limits though, and those limits usually touch on the ethics behind the model.  How do we feel on a model that bases itself on frustrating its users? How do we feel about a model that targets people that will spend thousands for a game when others will play that whole game for free? How do we feel about people playing for free a high quality game as if the work that the developers, the artists and game designers had no value? These are questions that many are asking.

Others have worked on the consumer psychology when playing Freemium games and have said that Freemium games are made to turn players into addicts. Although I agree with this for some games, I don’t believe all Freemium games are made to trigger addictions. Some game companies out there just want to make great games and the Freemium model is becoming a more profitable model in a very competitive and saturated market.

 

 

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About the author

Claire Roversi

Claire Roversi

Claire Roversi is studying Digital Business Strategy at Grenoble Ecole de Management in 2015-2016. Currently, she is associate producer in Pretty Simple.