Freemium and Fanatics

July 21, 2009

New York magazine had a feature on pizza this week and it mentioned that one pizzeria, Kesté, is offering a ten-day pizziaolo training course for $4,000 and there is already a waiting list. Now, I’d normally post something about New York pizza to my tumblog but every time I see an example like this I think of the freemium model for Web services.

Kesté is not a unique example. Museums frequently offer high-end travel packages to overseas art galleries and places of historic interest. Although airlines are struggling right now, their model has long revolved around charging some customers many multiples of the lowest priced fare for a significantly higher level of service.

None of the above examples are strictly freemium models but the common thread is deeper services that extend the spending (in the best cases at a heavy premium) of the most passionate customers. The reason I think of Web services is that freemium features usually feel like small and arbitrary product extensions.

I think there is a mental block online caused by the principle that marginal costs approach zero, which reinforces the assumption that all users are equal and promotes scale over everything else. But these ideas have never been mutually exclusive in the past and I don’t think they are now.

Examples like Kesté or first class air travel give me the feeling that premium Web services might need to be much more dramatic extensions of free features (with prices to match) for a very specific constituency of fanatical or professional users that probably haven’t been identified yet.

Posted on July 21, 2009

  • Hi.. Your post got me thinking… What is more valuable for a software company (like facebook or flickr). 1,000 paying users or 100,000 non-paying users? What are your thoughts? View my blog post here: http://www.purlem.com/blog/?p=57
  • Thanks for your comment. I read your post and it's an interesting question. If there is strong network component, i.e. the overall service becomes richer or more useful for every additional user that joins, having more unpaid users could be more valuable (assuming the bills can be paid by some other means).

    I have tended to think of 'free' as a cost of marketing but it can be more than that if free users are contributing to a central data asset. Contributions could come in the form of user-uploaded content like photos on Flickr, videos on Tube etc, that are part of the user experience/usefulness of the service. The data produced by users viewing, clicking, sharing etc is also a type of contribution because that data can be aggregated and analyzed to create something else. In these cases free users become more than potential customers, they become a valuable and necessary part of the service.

    The point I was trying to make is that not all users are the same. Some users are always more valuable than others and can be orders of magnitude more valuable. In these cases, I think there might be some conflict between growing a huge user base and creating deeper offerings for a smaller number of hugely more valuable users.
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