Show, don’t tell: Why freemium's taking over

Everyone loves free stuff. Taster samples at your local Checkers. Bundled accessories with your new phone. Someone else paying for your lunch.

But there’s something even better than free. Welcome to the world of freemium.

Freemium’s been around for a while now. From Spotify to Gmail to Candy Crush, it’s become such a ubiquitous part of our lives that even South Parkhas parodied it. And it’s still as powerful as ever.

Nowadays, snake-oil traders have plenty of options to make themselves look legit, from faked videos to armies of bots posting five-star reviews. Sometimes, they’re so convincing, they’re able to persuade seasoned investors to give them billions of dollars for technology that doesn’t work.

In a world where charlatans have gone digital, what better way to convince customers of your authenticity than giving them a fully viable product or service to use themselves? Showing is always better than telling.

When done right, freemium can turn a brand into a powerhouse. Last year, Candy Crush made a massive $930 million in revenue and Fortnite over $2 billion. In the enterprise space, Slack recently went public to the tune of $24 billion.

Less discussed is how well the freemium business model works in the developing world. But look at WhatsApp, whose decision to get rid of the annual subscription fee for its African and Indian users saw it become the biggest messaging app in the world.

It’s not just social platforms that are using freemium to attract customers in droves. In Ghana, BIMA and Tigo were able to attract one million first-time insurance subscribers by introducing a free basic family insurance product. Those users were then able to double their insurance cover for a fee – an offer that many took up.

Here at home, Siyavula is taking on the problem of textbook shortages by offering free educational materials online, available to anyone with a feature phone. The company is able to generate revenue by charging for use of its cognitive learning software.

When done right, freemium can turn a brand into a powerhouse.

The beauty of freemium is how it benefits people who may not otherwise have the disposable income to try out new products and services, which makes it an excellent model for driving inclusive growth.

With more banks following in TymeBank’s footsteps and now offering zero-fee accounts, the banking industry could finally uncover the secret to reaching SA’s large underbanked market.

The flipside of the freemium coin is that it’s a tricky business model to get right. It takes time, resources and a lot of trust to achieve the network effect and build a large enough network that can support itself.

Then there’s the balancing act of providing just enough for free to build a customer base, while keeping enough back that you can monetise in the long-term.

There are three principles to getting it right:

Know your value offering

One of the biggest challenges of making the freemium model work for you is knowing what and when to monetise. Give away too much, too soon and there’s nothing to sell. Withhold too much and you’ve failed to convince the customer your service is worth investing in.

It’s critical to create a compelling value offering beyond the basic free service. Is it a better user experience free of ads or with greater features, like Spotify? Is it connecting one half of your user base to the other, like AirBnB or LinkedIn? Is it being part of the network itself, like Fortnite? Whatever it is, there needs to be a clearly defined path to monetisation.

Customers rule

Sure, customers are the heart of any business, but even more so in a business model based on giving something for nothing …at least initially.

First, you have to make sure the initial user experience and value are there – if you can’t get enough people to use your service for free, there’s no way they’ll shell out cash for an “improved” version.

Then there’s the challenge of timing: when do you try to make the sell or start scaling?

There’s no quick and easy answer. Thankfully, the ‘free’ part of freemium is also its biggest advantage: near-instant access to a customer base full of insights. Pay close attention to what your unpaid users want, what they like and don’t like, what they would be willing to pay for, and even what it is about them that others would be willing to pay for.

Slack’s obsession with understanding customers – 99% of whom are free users – is what allows it to make $400 million off of just a fraction of paid users.

You don’t have to be freemium to benefit from freemium

Let’s face it, not every business or product is suited to go full freemium, and trying to force it when it doesn’t make sense is just going to lead to lost revenue. However, there are plenty of ways to use freemium to add value or reach out to new customers.

Mobile networks like MTN and Vodacom, for example, partner with content providers like Showmax, Deezer and YouTube to attract subscribers. It’s a win-win situation for everyone involved: customers get more value out of their contracts, the content providers enjoy a platform to expand their reach, and the mobile networks themselves are able to incentivise people towards their paid services with fairly little investment.

Whichever industry you’re in, you should be thinking about how you can apply the principles of freemium to add value to your business. Because there’s a lot of money in mahala if you know how to sell it.