When you have a free product or service with high amounts of traffic, platform advertisers become interested in subsidizing your free product or service by paying you a fee to share their advertisements. Free products generate high platform traffic and increase the attractiveness of your platform to advertisers.
Freemium users get basic functionality for free. However, a few paying people who want the full-featured version subsidize the users of the free version. Here you blend free basic services used by a mass of people with a paid premium version (pro version). Usually, about 10% of users choose to get unlimited access or additional features offered in the pro version.
Traditional developers, such as Microsoft, have high fixed costs to pay software developers to create and support a product. They in turn capture revenue by selling licenses and upgrades to the software.
OpenSource products flip this model on its side. Rather than create software from scratch, OpenSource products, such as OpenOffice and Linux OS, are developed by thousands of volunteer software developers. Therefore, the company can offer the product for free since they have no development costs.
However, many companies are reluctant to adopt OpenSource products since no single entity is legally responsible for providing and maintaining it. Rather than charging for new releases, it sells subscriptions for continuous access to the latest release, unlimited service and support, and the security of interactions with a legal owner of the product. Many companies are willing to pay for these benefits despite the fact there is a free version available.
Is using only free products a viable business model for your business?
