How to Make the "Freemium" Model Work
This article raises some strong points on what is necessary to establish a successful "freemium" model, whereby a small percentage of paid users are enough to earn profits from a product which most customers opt to use for free. Evernote provides the evidence that such a model can work when the necessary elements exist. The key elements needed are:
1 - a massive potential audience
2 - very low operating costs
3 - "gotta-have-it" value to some consumers
4 - high retention rates
The business model of Evernote lends itself well to this approach, and it is phenomenally profitable with only ~6% of its long-term users opting for the paid version. The business was designed to be profitable at just a 1% conversion rate, thus keeping operating costs low. The service it provides becomes even more essential the more you use it, to the point where some customers just can't walk away from it. And, over time certain features have been cleverly designed and offered to only paid customers, thus enticing them to stay and maintaining retention rates.
