Freemium: always invincible?
When freemium model was rooted in the frictionless internet, the wheels rolled on unstoppable. In the nest of 'Internet + Free', the attention economy and reputation economy have been hatched, and behemoths like Google have also been hatched, making the best use of '5% fee and 95% free' mode to the extreme. Freemium has allowed internet companies to be so slick that they are only interested in whether their products are 'cool' - this is the direct impact of free on the internet industry. However, the freemium model is not invincible. In the business model, freemium can help companies open up the market quickly, but it can also have a huge impact on the existing market.
On 2 November 2021, the note-taking software Notability ushered in a brand new version 11.0, changing from a paid model of buyout + value-added content purchase to a freemium download + annual subscription. Users who had already purchased were granted a one-year subscription for a yearly fee of ￥80. This decision immediately triggered great dissatisfaction among the purchased users. Some experts pointed out that Notability's behaviour was illegal. Interestingly, Goodnotes, another buyout handwritten note-taking software, announced a 48-hour price cut on 3 November, from 50 RMB to 25 RMB. Afterwards, Notability apologised, saying it had ‘heard the disappointment of existing users’ and decided to retain lifetime access for those who purchased the software before 1 November.
The subscription system attempted by Notability is typical of direct cross-subsidisation, where free is given away and future consumption subsidises the current free. By moving from paid to free downloads, the number of people accessing and using the software must have increased dramatically as there was less of a process of paying for it in the App Store; and because of the nature of Notability's software and the needs of its users, with fewer users using it for more than a year, an annual subscription was expected to lead to greater profitability. However, what happened was that the classic freemium model turned out to be a sharp knife pointed at itself. Admittedly, Notability's rollover is largely a violation of the contract with consumers and a blow to users' trust in the company, but isn't this a reflection of the destructive power of the freemium model? Freemium for software such as marginal cost close to zero for the commodity, has become an irreversible trend, enterprises tend to rush to go with the trend, so that the loss of existing users, damages to the image of the enterprise at all costs.
Moreover, even if the direct cross-subsidisation, day after day payment subsidies current freemium this model has been very mature, but for notes software, may not be a suitable model. From the user's psychological considerations, the traditional handwritten notes as a kind of creation and record, itself has a value beyond the content itself, but also have the significance of long-term preservation. Even for some phases of learning notes, it is true that you do not need to look through them from time to time, but the right to browse their notes at any time is the user can not easily give up, which may also be the most successful two handwritten notes software is initially a permanent system of buyout reasons. After changing to a subscription system, not only may the notes made this year be unable to be browsed or modified after the subscription is not renewed the following year, but even backups cannot be realised, which is unacceptable at the user's psychological level. Even in the internet business, freemium is not necessarily invincible and overwhelming; user trust is still something that determines the survival of a business.
References
Anderson, C.K. (2009). Free: The Future of a Radical Price.
Penenberg, A. L. (2009). Viral loop: From Facebook to Twitter, how today's smartest businesses grow themselves. Hachette Books.
The post has argued persuasively that while the freemium model has been remarkably successful in the digital age, particularly within the software and internet industries, it’s not without its inherent limitations and potential pitfalls.
ReplyDeleteThe core issue lies in the inherent tension between rapid market expansion through free access and the potential erosion of trust associated with changing fundamental access terms, which means that the freemium model is not a one-size-fits-all solution. Companies must deeply analyze their target audience, the nature of their product, and the long-term value proposition before adopting a freemium strategy. A poorly executed transition can severely damage a company’s reputation and deter future user adoption. The freemium must be carefully adapted to each specific product or market, or risk severe damage to the company’s reputation and user base.
This post accurately captures the inevitable frictions that occur when switching between two different payment models, namely the one-time purchase model and the freemium model. And as described in the post itself, such frictions may be closely related to users' psychological feelings. As the post states, for a note-taking software, a solid commitment to permanently storing users' data is undoubtedly necessary. The one-time purchase model provides a good feedback for this psychological expectation, ensuring that users can clearly perceive that "this is something I bought", thus fulfilling one of the aspects they are most concerned about when using such software - the security and permanence of information. The debate between one-time purchase and freemium has been ongoing, and the Notability incident is just the tip of the iceberg of this debate. In a large number of virtual pet or similar emotional software that emphasizes companionship, there are also controversies about permanent one-time purchase or freemium. And the reasons are often very similar: after we temporarily ignore the company's considerations in terms of profitability and the number of users, what people are most concerned about is often "whether I can securely own a certain product and the services within it". This may be another way of saying the "trust in the enterprise" mentioned in the post.
ReplyDeleteGoogle Drive, as a very popular personal cloud storage space worldwide, has always adopted the freemium model. And theoretically, it has stronger information sensitivity than software like Notability - people can put all their precious information into their Google Drive, and the impact of losing this information would be greater. However, regardless of the fact that Google Drive has never switched to the one-time purchase model, even if someone forgets to renew their subscription when using Google Drive and their additional storage space is "temporarily closed", this will not prevent them from having the right to download the files stored in the temporarily closed additional storage space. Google Drive cleverly avoids the dilemma similar to that of Notability that may occur in a persistent freemium model, and maintains its credibility in another way: no matter whether you renew your subscription or not, at most you just can't add new files anymore, and your existing files will always be there waiting for you to download them back. What matters is not how much users get, but that they don't want to lose.
After reading the essay, two keys words come to mind: consumption habits and brand trust. Horizontally, consumers would like to have same consumption habits for a certain category of apps(products), depending on their value proposition of this category. For example, the Nobility mentioned in the essay. Limited to the IOS users, there are also similar apps such as Goodnote, Marginnote, etc. If all of them adopt the same freemium business model, consumers will consider invest the same cost amount when using the same apps. And of course, this also related to the factor of business competition among same category of products. From the vertical perspective, habits formed depending on a long period of time. It is disappointing when a products you have been used to change the origin form of charging. You may feel betrayed. So for the Nobility who violate the business contract is actually contrary to the consumer habits formed by the above two perspectives.
ReplyDeleteThe consequences concern with the latter keyword. Trust, which means everyone's attitudes towards each platform. Unlike consumption habits, consumers have a measurement of trust making by themselves for each products, which often depends on the content of the marketing, FTF communication, and the consumer's own experience when using it. When the Nobility changed the business regulations in violation of the contract, it actually broke the level of trust that had been built up over the years. When the wall is broken down, people are reluctant to invest more into the continued use of the products.
In terms of notability, the shift from buy-out to subscription is part of the business model innovation that many software companies are currently doing. But for users who have already purchased a buyout, a sudden switch to a subscription system could be seen as a breach of the previous purchase commitment and damage users' trust in the brand. And changing the business model could obscure the market for Notability. This transition therefore needs to be handled carefully to ensure a balance between user satisfaction and the long-term success of the company.
ReplyDeleteFor users, under the buyout system, users only need to pay once, simple and clear, and the bought software is an asset that can be held for a long time. Suitable for those who want one-time investment, long-term use and stable needs. A subscription system can spread the cost over the months or years, reducing the initial payment pressure. And high flexibility, suitable for those needs change quickly, want to start at a lower cost, gradually expand the function of the user.
In conclusion, buyout and subscription have their own advantages and disadvantages. When choosing a business model, enterprises need to consider the characteristics of the product, the needs of users and the competitive environment of the market.