LinkedIn & the “Freemium” Business Model
When I make my occasional rounds on LinkedIn—to find out if all those jerks from college have jobs and stuff—I’m invariably drawn to the always enticing “Who’s Viewed Your Profile?” section. The last time I did this I was thrilled to learn that six people (six!) had viewed my profile over the past month, but was then immediately dismayed when I remembered the dirty trick that the masterminds at LinkedIn play on their users. “Someone in a leadership function in the graphic design industry from greater Chicago” had viewed my LinkedIn profile, but, devastatingly, I would not be able to learn with any certainty who the person is, without upgrading to a LinkedIn Premium account.
In the moment, I can definitely understand how the powerful combination of narcissism, ambition, and genuine curiosity would entice users to make this dreaded upgrade and start handing over a minimum of eight bucks a month to use LinkedIn Premium. How could you put a price on knowing who views your profile when, in all likelihood, the viewers are the people who can make all your professional dreams come true?!?
Anyway, all this got me thinking about the “freemium” business model LinkedIn is employing here. As you’re probably already aware, the freemium model basically involves offering your product, most commonly a web service, app, or access to content, for free, and encouraging users to pay an optional fee to get a premium version of the product that’s unavailable to the mere mortals who use the basic version.
LinkedIn Premium is my favorite example of this model in action, since the way it preys on our emotions is so obvious, (and frustrating) but tons of web companies have turned to freemium as a way to boost revenue despite the fact that web users have been conditioned to think that most all the online services and content we love so much should be accessible for free. Spotify, Hulu, Rovio, (the company behind Angry Birds) and many online versions of publications are additional examples, off the top of my head, that offer premium versions of their free products, at a nominal cost.
As we’ve learned time and time again, even explosively popular web companies can struggle to actually make money. Viewed in that context, the freemium model seems like it makes a ton of sense, but is it the real answer for long-term economic viability for the many firms in the digital space that should make up a sizable chunk of our “new economy?” Even though the model still allows for cheapskates to continue using the free versions of stuff, the frustration that can surface when using an ostensibly free service, only to hit a paywall with sure-to-be-epic, life changing, PREMIUM content or features on the other side, can be significant.
Once that frustration sets in, the user can either:
A). Cave and subscribe to the awesome premium version of whatever it is (I rarely do this, but did so recently on ESPN.com—I begrudgingly became an Insider on that site recently)
B). Get annoyed and develop a distaste for the company that’s put them in the position to make this decision (I do this regularly, especially when I check LinkedIn)
The hope, I guess, is that services like the New York Times, for instance, have loyal brand advocates who understand the situation, and will either become subscribers, or just stick to the free content without becoming disenchanted. Other, newer companies like Spotify have a possible advantage—since they’re more recently established, they haven’t set as firm of a precedent for their services being free. Once people become used to getting something for nothing, (aside from possibly offering up some personal information, or a bit of theoretical mindshare paid to display ads) suddenly asking them to pay for it is definitely a tough sell.
What do you think? Does this model make sense for web companies, or is there another approach that you see becoming the new standard?
Nick Gorski comes to Walker Sands as a 2010 graduate of Loyola University Chicago, where he double majored in visual communication and advertising/public relations. Nick is excited to handle the team's design needs and deliver top-quality work to clients. He hopes to leverage his current skill set as a productive member of the team, while continuing to constantly learn about technology and develop as a professional.
Nick,
Typical Freemium conversion rates are typically in the low single digits, 1-2%. So if you can build a large enough free customer base, it can be a successful business model.
LinkedIn needs large numbers of users for the service to be valuable. So Freemium works.
37 Signals doesn’t do Freemium. It’s a free trial of the full version, all features for 30 days. This has been very successful for them. Free users don’t create enough incremental value for them.
Just remember the saying, “If you’re not paying for the product, you are the product.”
Awesome info John… Leave it to you to bring the data whereas my post was almost totally anecdotal, haha. I like your point about LinkedIn—since its entire value is based on its large user base, it totally makes sense to use freemium.
Most successful dating sites use a freemium business plan. I know that’s how okcupid works. I haven’t looked at eharmony in a while but I believe they do something similar. There are certain things you can do for free but to actually take advantage of their service you have to pay a bit of money.
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