{"id":47340,"date":"2022-01-23T10:18:16","date_gmt":"2022-01-23T02:18:16","guid":{"rendered":"http:\/\/www.upgrademag.com\/web\/?p=47340"},"modified":"2022-01-23T10:18:19","modified_gmt":"2022-01-23T02:18:19","slug":"study-on-freemium-marketing-strategies-demonstrates-their-limits-for-creating-revenue","status":"publish","type":"post","link":"http:\/\/www.upgrademag.com\/web\/2022\/01\/23\/study-on-freemium-marketing-strategies-demonstrates-their-limits-for-creating-revenue\/","title":{"rendered":"Study on freemium marketing strategies demonstrates their limits for creating revenue"},"content":{"rendered":"\n

Freemium strategies dominate software product markets, with many if not most applications enticing new users with a free version, then requiring payment for more advanced features. The strategy thrives at attracting users, but there\u2019s very little empirical evidence showing how it impacts a company\u2019s bottom line.\u00a0New research<\/a>\u00a0published in the\u00a0Strategic Management Journal<\/em><\/a> changes that, with data that suggests this oft-used tactic has its limits for generating revenue, especially for companies trailing in their market category.<\/strong><\/p>\n\n\n\n

\u201cFreemium strategies often seem like a natural way of exploiting a network effect,\u201d says\u00a0Kevin J. Boudreau, an associate professor of entrepreneurship and innovation at\u00a0Northeastern University, and one of the study\u2019s authors. \u201cBy offering a free version, companies may be able to increase the size of their user base. But in order for a company to use the freemium model to increase revenue, they have to gain enough of a network advantage to tip the market.\u201d<\/p>\n\n\n\n

Boudreau, along with co-author\u00a0Lars Bo Jeppesen\u00a0of\u00a0Copenhagen Business School\u00a0and corresponding author\u00a0Milan Miric\u00a0of the\u00a0University of Southern California, created an empirical study using Apple\u2019s launch of the Game Center in 2010 and its effect on 485 gaming app market categories. Like almost all app categories, the gaming apps already existed in centralized markets, with leaders capturing 40% of all revenue in their app category, and second-ranked followers only 17%.<\/p>\n\n\n\n

The new Game Center introduced strong network effects to the market with multiplayer and interactive features. To better compete amidst the network effects, many apps shifted to a freemium model with their next product update, 70 days later. Researchers used this window, combined with 70 days before Game Center hit the market, to investigate how the freemium strategies performed. Their analysis included public data on more than 1.4 million mobile apps and proprietary data from a marketing analytics company to categorize the apps and identify market leaders and followers.<\/p>\n\n\n\n

\u201cAlthough a sample of 140 days may not seem a long time in conventional industries, app markets are particularly dynamic,\u201d says Jeppesen, a professor of innovation management. \u201cOn average, a market category would undergo dozens of leadership changes within this short time window.\u201d<\/p>\n\n\n\n

The authors used Apple\u2019s daily list of top 500 apps in sales and downloads to approximate revenue, using an established method that incorporates revenue ranking, prices and download ranking. They found using freemium strategies in markets with strong network effects widened the already large revenue gap between leaders and followers by 55%. Leaders gained ground and second-ranked followers lost it.<\/p>\n\n\n\n

\u201cOur results show that freemium strategies can lead to drastically different outcomes for market leaders and followers in markets with strong network effects,\u201d says Miric, an assistant professor of data sciences and operations. \u201cNetwork effects had no impact on products that were paid-only, but greatly amplified leaders\u2019 advantages where freemium strategies are used.\u201d<\/p>\n\n\n\n

The study\u2019s data suggests that freemium models and network effects are not always mutually beneficial, as many software companies believe. Companies that do not lead their market ultimately suffer when both are at play, and the market itself also suffers since competition and innovation ultimately decrease.<\/p>\n","protected":false},"excerpt":{"rendered":"

Freemium strategies dominate software product markets, but data suggests this oft-used tactic has its limits for generating revenue.<\/p>\n","protected":false},"author":6,"featured_media":47341,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16,25],"tags":[535,96,2727,1656],"class_list":["post-47340","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-biz-solutions","category-software","tag-software-2","tag-technology","tag-technology-adaption","tag-technology-investment"],"_links":{"self":[{"href":"http:\/\/www.upgrademag.com\/web\/wp-json\/wp\/v2\/posts\/47340","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.upgrademag.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.upgrademag.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.upgrademag.com\/web\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"http:\/\/www.upgrademag.com\/web\/wp-json\/wp\/v2\/comments?post=47340"}],"version-history":[{"count":0,"href":"http:\/\/www.upgrademag.com\/web\/wp-json\/wp\/v2\/posts\/47340\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.upgrademag.com\/web\/wp-json\/wp\/v2\/media\/47341"}],"wp:attachment":[{"href":"http:\/\/www.upgrademag.com\/web\/wp-json\/wp\/v2\/media?parent=47340"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.upgrademag.com\/web\/wp-json\/wp\/v2\/categories?post=47340"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.upgrademag.com\/web\/wp-json\/wp\/v2\/tags?post=47340"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}