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Is freemium still a viable model for social networks?

3 min read

Marketing Strategy

Free” is a word that inspires a lot of emotion. It’s a source of happiness for cheapskates like me, but some content providers are enraged by the expectation that their work will be released without charge. But perhaps no group is more fervent about the possibilities of “free” than the advocates of the freemium business model.

In the early days of the Web, free was very much the norm, until the dot-com crash thinned the herd of some truly ridiculous companies. Once the dust from the crash settled, businesses started getting antsy about the Web, wondering how in the world they would stay in business by giving things away. 

A few years ago, business began trying to combine the two models — giving some things away in the hopes of selling other things. It’s an idea that had some powerful advocates and some notable success stories — but this week, freemium took a hit, as custom social-network provider Ning announced it is backing away from the model.

Does that mean freemium is dead? Hardly. But Ning’s decision does tell us some powerful things about how the model works — and who it works for. Ning offered a pretty decent free product during a difficult economic climate. That might seem like a good thing, but the problem with a competent free product is that it tempts users to settle for good enough.

I think advocates of the freemium model would do well to look social gaming. The most successful social games never outright require you to spend a dime — but they do make it clear what you’re missing out on. Players are made keenly aware of how much better equipped certain competitors are — and they know that edge is the difference between a free and a paying player. The lure is always in front of you, and eventually it wears down your resistance to the idea of paying for something you’re used to getting for free.

Users of a freemium product or service need to feel like the free version really is good enough — at first. The deficiencies in the system should only become evident over time. Businesses should work to create a level of engagement with users that makes it more onerous to switch to a competitor than it is to upgrade. As other social networks toy with the idea of creating professional accounts or offering paid services on free networks, hopefully they’ll keep the upgrade logic of social gaming in mind.

Do you still see freemium as a viable business model? What was it about Ning that kept the model from working for them? What other companies do freemium well?

Image credit, iQoncept, via Shutterstock