Exploring the Freemium Business Model

Abstract

This thesis is exploring the Freemium business model, answering how a Freemium model is defined and how it works in real-life. It discusses the original definition by Fred Wilson, and present the context where the Freemium business model is used, Internet services in the Web 2.0. It also looks at how customers react to free services and the Internet. After this, the three main directions within business strategy theory are explored: Industry-based competition, Firm-specific Resources and Capabilities, and Institutional Conditions and Transactions. The concept of business models is discussed by looking at different definition and analytical frameworks. A few generic business models that are using the concept of “free” are presented, before returning to the Freemium model again. Other definitions of the Freemium model are being discussed here. Based on the theory on strategy, business models, and Freemium, a model of Freemium is presented leveraging the users role as co-creators of value and the importance of network effects. The key characteristics of the model are finally used in a case study of Skype and Spotify.