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A

PROJECT REPORT

ON

Emerging Marketing Trend

(Freemium)

SUBMITTED TO - SUBMITTED BY -

Dr. vikas kumar singh subhash singh

ACKNOWLEDGEMENT


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We are grateful to Dr. Shalini Nath Tripathi at Jaipuria Institute of Management,

Lucknow for allowing us to make a project on Emerging Marketing Trends

(Freemium).

We pay our sincere gratitude for her continuous guidance and for guiding us at

every step. Despite being busy in her work schedule she helped us throughout the

project. We are very grateful to her for constant support and co-operation.

Our special thanks to all for encouraging us to do very enlightening project. We

take the opportunity to give to special thanks to our group for full co operation in

the whole project and special thanks to parents, classmate, friends and well wishers

for their moral support and encouragement.

INDEX

1. Emerging Marketing Trends Freemium4

2. OBJECTIVE OF THE PROJECT.7

3. METHODOLOGY


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Genesis ..9 Research Design.10 Literature review11

4. CONCLUSION Findings..16 Discussions and Inferences.20 Future Implications of the Freemium.21

Emerging Marketing Trend

The word freemium is made up from the words free and premium.


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Freemium is a business model by which a product or service (typically a digital

offering such as software, media, games or web services) is provided free of

charge, but a premium is charged for advanced features, functionality, or related

products and services. The word "freemium" is a portmanteau combining the two

aspects of the business model: "free" and "premium"

It describes a business model where you give a core product away for free and sell

premium products; like the way Skype gives away free computer calls and sells

voicemail, calls to landlines and other products.

The internet phone service Skype is a prime example of the Freemium business

model. The program that enables you to call between computers is offered free. If

you want to call from a computer to a landline or have a voicemail associated with

your Skype account you have to pay. The free program has hundreds of millions of

users and only 10% of these free users are paying customers.

Technology is propagating new, equally powerful forms of multisided business

models. In some information businesses, for example, data gathered from one set

of users generate revenue when the business charges a separate set of customers for

information services based on that data.

Take Sermo, an online community of physicians who join (free of charge) to pose

questions to other members, participate in discussion groups, and read medical

articles. Third parties such as pharmaceutical companies, health care organizations,


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financial institutions, and government bodies pay for access to the anonymous

interactions and polls of Sermos members.

As more people migrate to online activities, network effects can magnify the value

of multisided business models. The freemium model is a case in point: a group

of customers gets free services supported by those who pay a premium for special

use. Flickr (online storage of photos), Pandora (online music), and Skype (online

communication) not only use this kind of cross subsidization but also demonstrate

the leveraging effect of networksthe greater the number of free users, the more

valuable the service becomes for all customers. Pandora harnesses the massive

amounts of data from its free users to refine its music recommendations. All Flickr

users benefit from a larger photo-posting community, all Skype members from an

expanded universe of people with whom to connect.

Freemium can be seen from a different viewpoint i.e. a company gives some

features free to generate the interest of users to its advance features and charge

premium for the advanced features. This business model works by offering a basicservice for free, while charging for a premium service with advanced features to

paying members

Example: - Free software or games.


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Freemium can be also seen as follows: - The biggest challenge for businesses using

the freemium model is figuring how much to give away for free so that users will

still need and want to upgrade to a paying plan. If most users can get by with the

basic free plan, they wont have a need to upgrade. For example, Ill probably

never upgrade my LinkedIn account and because I dont shoot high definition

videos, Ill never need a Premium Video account either.

OBJECTIVE

SOME FACTS ABOUT FB:-


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Total active users of Facebook

August 26, 2008 100 (USERS IN MILLION)178.38% (MONTHLY GROWTH

RATE)

April 8, 2009 200 13.33%

September 15, 2009 300 9.38%

February 5, 2010 400 6.99%

July 21, 2010 500 4.52%

January 5, 2011 600 3.57%

May 30, 2011 700 3.45%

September 22, 2011 800 3.73%

Revenues(estimated, in millionsUS$)
http://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/US$


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2006 (YEAR)$52(REVENUE)

(GROWTH)

2007 $150 188%

2008 $280 87%

2009 $775 177%

2010 $2,000 158%

2011 $4,270 114%

Hence,

The purposes of conducting this research are as follows:-

To understand the reasons of popularity of Facebook and related

organization.

To understand various ways to increase revenue by providing free service.

To understand the main reasons of freemium marketing.

To understand the innovative strategies adopted by these firms to capture

the developing nation market share.

To understand the various models of Freemium Marketing.

Genesis of the Freemium

The business model has probably been in use for software since the 1980s,

particularly in the form of a free time- or feature-limited ('lite') version, often given
http://en.wikipedia.org/wiki/Litehttp://en.wikipedia.org/wiki/Litehttp://en.wikipedia.org/wiki/Litehttp://en.wikipedia.org/wiki/Lite


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Research Design

This Project is in the category of Descriptive Research.

The information sources are basically based upon secondary sources of Data

like Internet, Newspaper, Magazine, and my mentors knowledge and

experience.

This project will be done within a time frame of 30 days.

Information is taken from THE ECONOMICS TIMES Lucknow Edition-

FEB 2, 2012.

FREEMIUM

To understand freemium, we must first look at it in relation to the Internet, how it

is used, and its position in the very competitive online market. As there has been


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little research on freemium thus far, I introduce the term based on non-academic

work.

FREE & INTERNET

The concept of giving something away in order to entice customers is not new.

Similar terms include shareware and freeware, but these are defined specifically

for software. Freemium on the other hand is about services. To exemplify this

distinction, we can look at the music streaming service Spotify. It is not the

downloadable software that matters, but the musicthe service. Other than that,

the rationale is similarenticing customers to buy the premium version.

According to the Copenhagen Institute for Futures Studieswe are witnessing a

pronounced flourishing of free content and services on the internet. They argue

that this implies all things digital and mass produced will become free, while

unique products and experiences will be worth more. Thus, all companies that have

digitized products will be accepted. One example of this is how Wikipedia

disrupted the historically lucrative encyclopedia business. Bill Gates, founder and

former CEO of Microsoft have said that the Internet helps achieve a friction-free

capitalism as buyers and sellers are put in direct contact with each other, and

where the cost of manufacturing and distribution approaches zero.

At the same time as the Internet is changing the economy by pressuring the price

downwards, it enables new possibilities, e.g. such as making it easier to price

discriminate between customer segments, easier to reach a far bigger market at a

cheaper price than for physical products, and providing opportunities for making

money in entirely new ways, one of which is freemium.

Anderson claims that people are making lots of money and charging nothing.

WHAT FREEMIUM IS AND IS NOT?


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As the definition of freemium is equivocal as to specifically what it is and is not,

and therefore who are using freemium and who are not, a clarification is needed.

A company is said to be using freemium if at least one of their products is based on

giving away a free version for some users into perpetuity, while others must pay

for a premium version. In this project premium is defined as advanced features,

functionality, or related products and services. From this we see that freemium can

be both related to one specific product or to a companys suite of products.

Defining specifically when a company is using freemium and when it is not is

inherently difficult because of the potential complexities which can be introduced

when a product or service is digitized. However, it is outside the scope of this

project to look closer at classifying specifically when a company is using freemium

and when it is not.

FREE VERSUS PAID

According to Rekhi (2010), a San Francisco based entrepreneur and former

Entrepreneur in Residence at early stage VC Trinity Ventures, choosing where to

divide the free and paid plans is the essential critical question when using

freemium.

Several practitioners have proposed typologies for freemium to better analyze this

chasm. Anderson (2009) suggests five ways to differentiate free and paid: The free

version can have less functionality than the paid version; less capacity, e.g. the

number of megabytes of pictures; be limited to a number of people; be free for

some, e.g. for non-commercial use, while others must pay, e.g. for commercial

usei.e. differentiating by customer class; and lastly it can be a limited amount of

time on the full featured product, often called a trial.


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Another suggestion is differentiating on quantity, features, or distribution.

Differentiating by quantity can e.g. be limiting on time, as also mentioned by

Anderson; by maturity, e.g. giving a subset of the user base the program for free

while it is still under development and not ready for general consumption; or by

letting paying customers get a time advantage over free users by letting them buy

the time-sensitive information before it is provided free of charge at a later time.

What terms distribution is similar to what Anderson terms customer class. Thus,

we see that these typologies are similar, but Pujol (2010) has a far more inclusive

quantity category, and therefore a less specific differentiation that the one

presented by Anderson.

Both typologies mentioned see trials as a form of freemium, many practitioners,

however, dont, and discusses it as a distinct concept different from freemium.

Including trials lead to products such as Microsoft Office 10 and Adobe Photoshop

CS 5 using freemium, something many disapprove. In this project trials are not

seen as freemium, and will therefore not be discussed further.

Not mentioned in the typologies we have examined, is what Murphy(2010) terms

alternative product. He defines this as a very simple, single-purpose [product or

service] that solves an immediate, specific and highly targeted need, but which

promotes significant network effect and ecosystem opportunities well beyond that

application. The primary differentiator to what the typologies discuss, is that this

product is stand-alone and only an addition to the flagship product, which is not

using freemium.

To distinguish between who should pay and who can use a product or service for

free, Chen(2009)suggests that the key is to create the right mix of features to

segment out the people who are willing to pay, but without alienating the users

who make up your free audience. And this is exactly what Hudson (2009) sees


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as a problem, stating that It is very difficult to properly segment users and

features such that you provide enough value to both paid and free audiences.

SO, WHAT DO USERS PAY?

In their report on freemium, the consultancy Sixteen Ventures claims that when

using freemium the majority of users likely have no intention of ever becoming

a customer. In a regular non-free purchase of a product there is a quid pro quo

money in exchange for the productwhich is not as clearly eminent in freemium,

as most customers might never pay for using the product or service. Is there then a

quid pro quo for freemium, and if so, what is it?

According to Sixteen Ventures themselves the quid pro quo is about getting the

users attention and utilizing this attention to make moneyit only makes sense

to seek ways to benefit from and monetize their usage of the system. With a

somewhat different view, Pujol terms the quid pro quo as mind share, and defines

it as the development of awareness for the providers brand and the

consideration for purchase of future commercial products and service. In the

former view the focus is on utilizing what the company can learn from users, while

the latter focus on marketing aspects of freemium. Without taking any stands

between these two positions, we see that there is still a quid pro quo; it is, however,

different from the classical money in exchange for product.

RESEARCHING FREEMIUM

Currently a third of the top grossing iPhone apps use a freemium model.

Freemium is also heavily used in Facebook applications, with the most famous

actor, Zynga, now valued at $5.5 billion USD. In addition to the examples we have


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seen earlier, we see that freemium is used by several prominent actors. However, at

the same time there are considerable uncertainties as many companies are

experiencing considerable problems. Rekhi claims:

I believe we are still early in our understanding of [freemium] and to date most

of the available analysis has been limited to anecdotal evidence, one-off case

studies, tips & tricks, and a few early overviews of whats been tried.

Tongue-in-cheekwe can say that generally the Yiddish proverb For example is

not proof seems appropriate, and clearly research on freemium is highly needed.

FINDINGS:-


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From our project, we founded 4 basic models of Freemium marketing adopted by

the marketers.

1. FREE 1

2. FREE 2

3. FREE 3

4. FREE 4

DETAILS OF EACH MODEL:-

Here in figure:-

1.FREE 1


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(Direct cross-subsidy; get one thing free, pay for another)

The producer offers one product absolutely free to the consumer but charges

for the other product from the same consumer.

This helps marketer to create awareness from one product and encash from

another product.

There are two components i.e. Producer and Consumer.

Therefore one product subsidizes another product for the producer.

2. FREE 2

(Ad-supported; third party subsidizes second party).

There are 3 components i.e. Producer, Consumer and Advertiser.

The Producer gives a product (1) for free to the Consumer.

The Producer Charges fee for another product (2) i.e. Ad space to the

Advertiser.

In this way, Producer generates revenue from the Advertiser.


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The Advertiser gets response in form of sales of their products which they

advertised.

The consumer become aware about the various products through ads and this

generate profits to Advertiser as well as to Producer.

Hence third party (Advertiser) subsidizes second party (Producer).

3. FREE 3

("Freemium; a few people subsidized everyone else)

There are 2 components Producer and Consumer.

The Producer offers one product free to many consumer and charges for

another product to some consumer.

In this way few people subsidize everyone.


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4. FREE 4

(Gift economy; people give away things for non-monetary rewards).

There are 2 components i.e. Producer and Consumer.

Producer gives product free to consumer.

The producer doesnt get anything monetary in return but gets non-monetary

rewards.

Non-monetary rewards can be attention, reputation etc.

DISCUSSIONS AND INTERFRENCE:-


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A company is said to be using freemium if at least one of their products is

based on giving away a free version for some users into perpetuity, while

others must pay for a premium version.

Premium is defined as advanced features, functionality, or related products

and services.

Freemium can be both related to one specific product or to a companys

suite of products.

When a company is using freemium and when it is not is inherently difficult.

Choosing where to divide the free and paid plans is the essential critical

question when using freemium.

The free version can have less functionality than the paid version; less

capacity.

It can be a limited amount of time on the full featured product, often called a

trial.

When using freemium the majority of users likely have no intention of ever

becoming a customer.

Getting the users attention and utilizing this attention to make money, it only

makes sense to seek ways to benefit from and monetize their usage of the

system.

The development of awareness for the providers brand and the

consideration for purchase of future commercial products and service.

The Freemium model doesnt guarantee the success of the marketing firm.

It is very critical to analyze about what to give free and on whom premium is

to be charged.

Since, no business can be run without profit in long run and it is the lifeline

for any business.


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Business is not a charity and each firm have to accurately predict when it is

using Freemium.

FUTURE IMPLICATION:-

Freemium is an emerging trend.

Freemium companies will attempt to stem the tidal wave of free contentsweeping across various sectors - as they bid, as it were, to halt the

obliteration of price - to consider whether the tactics being employed online

have relevance in other retail contexts. And at a wider level, what light can

the Freemium debate shed on the question of what customers in the 10s are

willing to pay for? Will millions of consumers simply want something for

nothing?

There will be a specific focus on Freemiums impact on, and relevance to,

three of the themes that we can monitor within Vision Considered

Consumption, The Responsible Consumer and The Networked Society.

Through using Freemium marketing, Marketer can create awareness speedy

and quickly.

Freemium marketing can also be used as a major method of Publicity.

It can also be used by the tool for Market Penetration.

Through Freemium Marketing marketers will try to gain the perceived mind

share about the offering by the company.


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Every customer want genuine product that have some significance to him

and Freemium marketing can provide that platform to the customer by the

way initial free offering that the customer feel accustomed to that offering

and it will enhance customer faith in that offering which ultimately bring

more revenue to the marketers in so called competitive market scenario.

THANK

YOU

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