Pandora’s original business model was about giving each potential subscriber 10 free hours to listen to their favorite music and subsequently persuading them to pay a monthly subscription of $ 36 for their service. No wonder, individuals were not ready to pay that much for a service which they got free of cost on FM radio (Laudon, 2012). Failure of the original model motivated them to introduce the “freemium” model which gives limited free service to everyone; the ads showing up between songs tend to reduce the quality of the listening experience and influence listeners to subscribe to the premium price that is priced at $ 36 for 12 months, much lesser than the original price of $ 36 for a month. If free service model focuses on allowing customers to enjoy a service for free in the hope of attracting them to buy the service, freemium model gives a low quality service for free while giving a premium service for a price.
Customer value proposition is a promotional statement summarizing why someone should buy the product or service offered by a company (Value proposition, 2016). The “Music Genome Project” that provides an innovative way to classify music which enables grouping of music composed by similar artists so that individuals can form their own personalized broadcasting station is the customer value proposition of Pandora. Pandora’s impeccable technology that incorporates music that was earlier evaluated by renowned musicians and hundreds of data points between genres helps create customized playlists for subscribers based on their listening habits. This state-of-the-art technology is unique and cannot be copied by other companies.
MailChimp could succeed employing the freemium model as its earlier business model made it financially sound. Its subscription based system prior to going freemium gave it a solid customer base and revenues. The freemium model fares well in light of a larger audience coming forward to pay and enjoy MaiChimp’s added value. MailChimp is a successful freemium model since it is capable of attracting any individual who regularly sends a same email to multiple receivers. Any marketer or service provider who wishes to send hundreds of thousands of emails to the general public and track the rate of conversion of the mails sent are likely to subscribe to this business model. On the other hand, Ning failed as its premium model did not give any new feature to the customers. Besides, a new customer did not gain any significant benefit free customers enjoy. Ning’s freemium service failed as it did not find many customers who wanted to build their own social networking sites.
While contemplating a freemium revenue model it is important to target a large potential customer base. In other words, the more free users one is able to reach, higher the number of customers one can attract. The great advantage of the internet is that it helps in reaching out to millions at a very lower cost through innovation and automation. More importantly, negligible variable cost for adding extra customers is the key to reach out to customers within a short period of time. User friendliness and easy to operate are two important factors that make products and services popular among customers across the globe. Of course, the big challenge is sustaining the simplicity and user friendliness as popular services like Google Plus that were popular once worldwide became more complex now (Laudon, 2012). A freemium revenue model should concentrate on adding new features periodically for a payment since free features do not bring any income. The business strategy of freemium business models should also concentrate on building networks as individuals who are part of a network would think twice before leaving a network.
References
Laudon, K. C. (2012). E-commerce: Business, Technology, Society. Upper Saddle River: Pearson Prentice Hall/Pearson Education.
Value proposition (2016). Investopedia.Retrieved from http://www.investopedia.com /terms/ v/valueproposition.asp
