The Drive to Success: Freemium model for E-Commerce
Before getting to know what Freemium is and how it can contribute your business to prosperity, it is importance to be familiarized with the concept of e-commerce. E-commerce, which sometimes you might hear as electronic commerce or internet commerce, established in the late 1990s, and it is basically that activity of making purchases and selling goods and services through the use of internet. Significantly, those activities must be completed by allowing transactions to be done electronically, as well. E-commerce is one of not so many things that is thriving with more that 30% growth in customer spendings, comparing to 2019. Think about all the retailer sites and applications you know; Amazon, Ebay, online clothing stores such as Zara, Topshop and more, they are all E-commerce. You might be wondering who can do e-commerce? Only those big companies? The answer is no. There are various platforms such as Wordpress and Squarespace that help facilitating those activities. Moreover, E-commerce can be used in 4 types, which are Business to Business(B2B), Business to Customer(B2C), Customer to Business(C2B), and Customer to Customer(C2C). However, for today’s topic, I will focus mainly on B2C.
What is Freemium? Freemium is a business revenue model that allow customers to use some services without the monetary requirement. Not only that, the premium services are available for those customers who are willing to pay the price. In order to understand the model better, I would like to use Pandora case as a example. It is very interesting to know that Freemium revived Pandora from nearly financial collapsed to prosperous growth, from 2005 to 2013. As you may know that Pandora was one of the most successful internet radio platform that caters to personalized music genres. Even though, the company’s users started to recede by overwhelming number of competitors, the story is still worth to tell.
Back in 2005, Pandora is established with the first business model to let customers use it’s service without charging for 10 hours, after those hours are used, the customers will be asked to subscribe with the cost of $36 per month, over a one-year period. From this point, you might have the same question as me, wondering who are willing to pay that expensive price? Although, the service is nice, it’s $432 a year! And we are right, no one wanted to subscribe and refused further service after using the free 10 hours. Thus, Pandora was left with financial crisis.
Surprisingly in 2009, the situation was drastically enhanced after the adoption of the new Freemium model that came with “free” service that allows listeners to use the platform with advertisements and restrictions, such as limitation to hear songs on demand, replay songs, and six skips per each hour. On the other hand, Pandora One Premium service is offered with $36 per year, subscribers are allowed to unlock high quality music streaming, application availability for desktops, less limitation on the usage, and no advertisements! I have to admit that with the better conditions as mentioned above, I want to use Premium! And Pandora subscriber thought the same,
60,000 users had subscribed to Pandora One, even the number of subscribed users were accounted for 1%, it brought Pandora revenue of $137 million in the following year, $274 million in 2011, and $427 in 2012. Not only Pandora, but companies such as Evernote, MailChimp, Dropbox, LinkedIn, and Skype were able to ignite their success through the use of Freemium.
Anyhow, it is important to highlight that Freemium has some criteria, in order to make it work. Firstly, the marginal cost of the service must be really low (nearly zero) to support a large portion of free users. Secondly, the market for the service has to be big, that enable you to profitable income from even only 1% of the Toal users, as Pandora has over 60 million of total users.
Most importantly, there are 8 key components for E-commerce business model. First, the company itself is required to have a clear and strong value proposition that explains how consumers’ need will be fulfilled by the offering products or services. Second, revenue model, such as Freemium, which is simply how the company is going to make revenue. Third, marketing opportunity that is the amount of revenue that the company can potentially receive from the market. Fourth, competitive environment, as to observe and analyze the company’s direct and indirect competitors, including how successful they are in the market. Fifth, competitive advantage that mainly a point of differentiation of your company from other competitors. Sixth, marketing strategy that is a plan to drive the company towards it’s goals. Seventh, organizational development, which is the process of identifying the important business functions and skills that employees are required to have, in order to complete the tasks. And last but not least, management team as a group of leading individuals or C-suite, who play significant roles to lead the company forward.
