Where can publishers look for examples of successful freemium business models?
As good a place to start is Spotify. With 15 million users and around 4.2 million of those paying a monthly subscription fee of either £4.99 or £9.99 a month - according to Maples - the music streaming service is setting the pace in paid-for digital entertainment. Though expansion costs have kept Spotify from profitability, that 28 percent conversion rate provides a solid base that could deliver big with the right scale across new markets.
Speaking at the Association of Online Publishers' forum event on freemium business models chaired by our site editor Patrick Smith, Spotify's VP for Europe Chris Maples highlighted some key parts of the Spotify business that could hold lessons for other media businesses trying to build a freemium business model:
Protecting the free in freemium
There would be little point in Spotify setting up a paid-for only service when so many others have tried and failed. Though it has meant difficult negotiations with music labels, Spotify won't launch in any new territory without a free element.
“The balance of free to paid subs has always been in our DNA. If you want to set up a premium service it is fairly simple. We try to create a unique and healthy balance between free and premium.”
So the business model for Spotify won't work without the free element: Marples was adamant that the advertising-supported free model was in itself a significant revenue contributor in its own right. Spotify serves three minutes of adverts per hour - far lower than commercial radio - but more importantly, without a free option it would lose its key mechanism for upgrading customers, who become hooked on a unparalleled online music experience.
On the other hand, also speaking at the event was The Times's editorial director for online, Tom Whitwell, who explained the progress of the totally locked-down, paywalled site and premium digital products.
The Times has opted for a full-on paywall around all its content, but can it keep growing without a free lure to gain subscribers? The Times has more than 120,000 subscribers paying £9.99 a month - making The Times more money digitally than when the paywall launch in 2010. But is the service lack in a similar free-to-paid conversion mechanism?
Focus on the goal not the competition
Maples says one of the problems he encountered when working at Microsoft was the firm's obsession with what competing firms like Apple and Google were up to. For Spotify, being distracted by other businesses building their own models could have been fatal, he says.
“It is very important to be resolutely focussed on your own strategy and not worried about others. If you are myopically focussed on what you are doing then you have half a chance, but if you worry about what others are doing you have already lost the battle.”
"Your model has to be tailored to your target market and your content, looking over your shoulder not only takes up time, it could leave you learning the wrong lessons."
It's not about content, it's about service
People pay for content didn't they? Yes, but they stick around for the service. That's one thing that all the panel agreed on: subscribers are retained by good technology and customer service, not just quality journalism or the best tunes.
Building a seamless user experience was key to Spotify's success according to Maples, and the Spotify has worked hard to ensure its desktop, smartphone and tablet apps are tailored effectively to what consumers want and the firm reacts quickly to any bugs. The flip side? Bad customer service is how you lose customers. As Whitwell put it: "When we see customers cancelling their subscription it is always about customer service, not because they don't like our articles."
And it's not just getting it right on platform. If there is a new platform that consumers are using, you need to be on it because customers aren't going to be placated by the difficulties building for different devices, they just want to be able to access content now.
As Maples puts it: “Consumers get tech more quickly than technology companies get technology. They don’t see a difference between platforms. And they don't care how difficult it is for us to build something. If you don't provide it to them they will find it elsewhere.“
Image by Sorosh on Flickr via a Creative Commons licence.