What is the freemium model? Is free the best profit model?

Many businesses today do not understand the essence of free, so many mistakes occur. For example, some merchants give away products for free, but will raise the price a lot later. That is to say, if they give you a pound of tea that originally costs 800 yuan for free, when you actually come to buy it, the price will be raised to more than double or even double the original price. This practice is not really free, but rather a price transfer, using the second time to make up for the first time. This is just a disguised charging model and fake free marketing. The purpose is nothing more than to find a gimmick for their marketing and deceive more consumers.

Many companies do not understand the essence of the free model . The reason is that they use the traditional theory - the charging theory , and do not accept the free model. Traditional marketing, financial accounting, and especially economics theories are all paid theories. Reason: Resources are scarce. Scarcity requires choices. Choices bring opportunity costs. The price of opportunity costs cannot be less than the cost, let alone zero.

The lower limit of the price is the average cost of producers, and the upper limit is the highest price that consumers are willing to accept. Competition among peers forces prices to approach average costs, and the more competition there is, the harder it is to make a profit; monopoly causes prices to approach the highest price consumers are willing to pay, and the more monopolistic there is, the more profit there is. If the price is lower than the average cost, you will lose money; if the price is higher than the desired price, you will not be able to sell it. Therefore, providing services for free will make a company or startup team unable to survive. It is a business behavior that goes against common sense and therefore cannot be accepted. Accepting it would be courting death.

In fact, free services are provided for the purpose of charging better fees . In the early stage, free services are used to quickly capture market share, and in the later stage, value-added services and high-end services are used to charge better fees. When formulating and implementing a free strategy, it is very important to firmly grasp the commercial essence of free - "cross-subsidy".

For consumers, free means paying in the future. For businesses, free is to attract consumers to become addicted consumers so that they can charge better. The profit source of the free model is interactive subsidies, using the profits of third parties to subsidize themselves, or using later value-added services to subsidize the early stage.

Here are a few cases to prove that free is a better price.

Case 1: Google is an advocate and practitioner of the Internet free strategy . It provides free library materials, mailboxes, maps, photo management, and office software. As a result, Google became the largest Internet company in the world.

Case 2: Internet games. Before 2005, most games on the Internet were charged on time, and later Shanda pioneered the free online game model. In just four or five years, the user base of the online gaming industry has grown from 10 million to more than 200 million; revenue has soared from more than 2 billion to 30 billion in 2009, an increase of more than 10 times.

Case three: Tencent QQ. Tencent QQ has been free since it first entered the market. With this advantage, QQ quickly occupied the Chinese social software market, and many people use QQ for social communication. After gaining market share, QQ uses value-added services such as QQ Membership Yellow Diamond and Noble to better serve users. At the same time, these paid services also make the company earn a lot of money.

Case 4: 360 is free forever . Zhou Hongwei said: Our goal is to increase the penetration rate of security software from 10% to over 90% through a free model, so that everyone can afford security software, thereby improving the security level of the entire Chinese Internet. Now, the number of users of 360 Security Guard has exceeded 200 million, covering more than 70% of Chinese netizens. I believe that just like online games, after becoming free, it is entirely possible to increase from more than 1 billion to 10 billion by charging for value-added services and advanced services.

The above cases fully demonstrate the advantages of the free model. Free is the best way to make profits. In addition, with the development of mobile Internet, the self-media model of e-commerce has emerged. The self-media itself is free to subscribe to, such as Lu Songsong’s blog, which is free to read and has won the attention of many people. At the same time, it has also brought many businesses that want to advertise to the blog, and has very good advertising revenue.