These two charts, taken together, are what have me convinced that freemium is going to be the dominant business model for any serious application in the future.
What these charts tell me:
- Mobile applications either win or lose; users try lots of apps, decide which they like, and then use those few heavily
- Users are willing to pay for apps they use heavily
The key, then, is how to convert users into heavy users, and thus convince them to pay. Evernote, Dropbox, Pandora, and others find the freemium model well-suited to this–get lots of free-users, offer a compelling product, and convine the heaviest users to shoulder the majority of the cost.
There are other options. Microsoft and Adobe are able to jump immediately into a relationship via their reputation and business lock-in. But I suspect the days of such uniformity are drawing to an end. Google Docs, Evernote, and a whole suite of applications threaten the Office lock-in. Adobe and PDFs, another must-have software set, is also on the decline.
I can imagine the freemium model expanding to other industries. Amazon’s announcement of free book rentals is an interesting stab at a physical-world freemium program–users still need to buy (subsidized) Kindles, but it seems like their goal is to lower the trial costs as much as possible, and encourage the heaviest users to come in with gusto.
There’s real money to be made in figuring out how to apply this pay-gradation to other industries. I could imagine it would be effective in video, in particular.