Versioning and Freemium

Question 1

How is Spotify a freemium brand? (5)

Answer 1

1. 100 million users(high switching costs)
2. Managed to carve out a paid audience
3. Uses many Web 2.0 social features
4. Typical conversion rates are much lower: has good balance
5. Good targeting: student and family memberships

Question 2

What challenge does the journalist industry face?

Answer 2

1. Bundles of products
2. No longer the main source of information due to free sources
3. Other competitors related to celebrities

Question 3

What are the origins of freemium? (6 points)

Answer 3

1. Concerned with the previous of an ongoing free version and premium versions
2. Usually a low conversion rate (1-4%)
3. It provides an answers to how to fund content placed services, e.g. advertising, commercial partnerships. donations
4. Prior term versioning is used in software markets
5. Paymium idea and Free-to-play
6. In-app seen as a growing significance (candy crush)

Question 4

What are the economics of versioning? (5 points)

Answer 4

1. Information products are those capable of digital distribution
2. Expensive to produce first copy, then low marginal costs
3. The fixed costs are dominated by sunk costs (the failed film or album)
4. Variable costs are low, huge economies of scale
5. Network effects

Question 5

Where are the cost savings in the Economics of things versus digital economics? (2)

Answer 5

1. Economics of things:
   - Physical costs of materials needed to: print, distribute and sell
2. Digital economics:
   - Economics of information (changing content is easier)
   - But opportunity to extract revenue disappears as well

Question 6

What about digital products and increasing returns to scale? (2)

Answer 6

1. Economics of things: decreasing returns set in due to difficulties of managing large enterprises. (diseconomies of scale)
2. Digital economies: High development cost (very expensive initially) but then economies of scale kicks in, can scale well.

Question 7

What are the attractions of freemium for the user? (2)

Answer 7

1. A better alternative to free trials and their complications
   - accidental customer
   - freemium is a central part of the proposition
2. these products are experienced products and customers can see if they like them

Question 8

What are the attractions of freemium for the seller? (3)

Answer 8

1. Build awareness: Give away limited features (think about when this doesn’t work)
2. Network effects and viral marketing
3. Power of having large audience: can spread message quickly

Question 9

What are the traditional methods of versioning? (Shapiro and Varian, 1997) (6)

Answer 9

1. Convenience: Limits on usage, could be time delays built in (candy crush)
2. Comprehensiveness: News companies
3. Manipulation: e.g. being able to export data to excel
4. Capabilities. what you are able to do, can’t go past a certain level (levels of games)
5. Annoyance Marketing; reminders that you don’t have the full version
6. Technical support: basic version no or little support available

Question 10

What is the conversion lifecycle? (Kumar, 2014) (4)

Answer 10

1. Early adopters: Do they spread the word to other people? (are worth free marketing)
2. Conversion rates will dip
3. Are users becoming evangelists?
4. The need for ongoing innovation

Question 11

What did researches found about In-app purchases for freemium users? (5)

Answer 11

1. Loyalty influences the willingness to pay for in-app purchases (Hsiao and Chen, 2016)
2. Playfulness, reward and access were seen as important (easier to extract money)
3. Saw gender differences in the research
4. Stickiness (loyalty) and social identification (connecting with the group) seen as important
5. The Longer a game was used

Question 12

What are the differences between platforms?

Answer 12

1. Apple and Android users spend different levels of money

2. this has implications for pricing strategies

Question 13

What are some challenges the industry is faced with?

Answer 13

1. Issues of users loyalty: . Loyalty is a more active usage, not dormant users (level of engagement reflects loyalty)
2. Issues around progression: Reaching the end of a game, how does one create switching costs?

Question 14

Do you want the crowd?

Answer 14

1. Advertising purposes and info: if you want to be the lookout, can see both sides of the market (many users as possible) know a lot more about customers
2. Economies of scale
3. Network effects

Question 15

Define Freemium

Answer 15

A business model that allows a consumer to receive basic services for free, but requires them to pay for any service deemed to be premium