19 ways to monetize or improve monetization of mobile, social, and casual games

Percentage of paying users is among the important metrics tracked by the game developers that utilize freemium as the predominant business model for their mobile/social/casual games. Typical value of this metric is between 1% and 3%, implying that only about 1 to 3% of a game’s user base is the paying user base. In other words, at least 97% of a game’s user base is not making any in-game purchases or paying to play the game. The popular way in which the game developers monetize this 97% user base is through in-game advertising, which in itself is not the best way to monetize because the ads distract from the game experience and the revenue from virtual goods is 4x higher than that from advertising.

The major opportunity, therefore, lies is figuring out how to better monetize the non-paying 97% of the mobile, social, and casual gamers. In this blog, I argue that the game developers can utilize a combination of product flavors and pricing options to better monetize their games. Game developers can use the following 9 models to monetize and 11 techniques to improve their game monetization. Please note that some of these models and techniques are already used extensively, whereas, others, I have derived from the real world products and services, and from my readings.

8 monetization models:

1)      In-game banner ads: This is already been used extensively. It provides a free option for users that are not willing to pay anything for playing games. Some of the mobile games using this model include Paper Toss by backflip studios and Touch Pets* by ngmoco.

*Touch Pets also features virtual goods

2)      Flat fee: This is also already been used extensively. It provides a one-time flat pricing option for users that are willing to pay a flat fee to play games or to access premium features of games. Some of the mobile games using flat fee model include Rovio’s Angry Birds and Activision’s Call of Duty.

3)      Integrated branding: This has been increasing in popularity as a monetization model. Some of the mobile games using this model include Tapulous’s Tap Tap Revenge and ngmoco’s Godfinger. One of the social games using this model includes Zynga’s FarmVille.

4)      Micro-transactions: This is the most popular monetization model among social, mobile, and casual games. This model is also deployed by some of the traditional MMORPG games such as Shaiya by Aeria games. Under this model, the game world (creating value for virtual goods) and the game mechanics (creating demand for virtual goods) work in close collaboration to drive sales of virtual goods within a game. Some of the mobile games utilizing this monetization model include ngmoco’s Godfinger and Touch Pets, and Tapulous’s TTR and R2; examples of social games using this model include Zynga’s product line, Digital Chocolate’s product line, and Playdom’s product line.

5)      Cross-Branding: Under this model, game developers can utilize their game as a brand to sell the complementing real world goods. Some of the examples include Zynga and 7-Elevan cross promotion and Rovio’s Angry Bird Plush Dolls.

6)      Micro-leasing: Under this derived model, game developers may allow their users to lease a set of virtual goods at a price point lower than purchase price for the same set to be used for a set period of time with certain usage restrictions. This model may allow game developers to monetize their non-paying users who are not necessarily interested in owning the virtual good and do not mind some usage restrictions.

7)      Pre-packaged games: Under this derived model, game developers may offer their users their games pre-packaged with a set of virtual goods at a higher price point than a standard game version. This model will allow developers to capture higher willingness-to-pay of some their paying users.

8)      Netflix-style subscription: Under this derived model, a game developer may offer its users a fixed number of virtual goods for a flat monthly fee; essentially, same as Netflix model.

11 techniques to improve monetization:

1)      Personalized store-front: This is more of a feature to enhance monetization and less of a standalone monetization model. Game developers may develop features within their games to offer exact virtual currency packs required to capture a user’s next game move. For example, in ngmoco’s Touch pets, the game (inferring from my in-game click-through and knowing that I hold 599 coins) may offer me to purchase 396 coins at a prorated price to adopt a specific dog priced at 995 coins. Please note that this tactic may not work in iPhone platform since Apple requires its app developers to pre-define all of app developer’s in-game virtual goods.

2)      Virtual Goods variety: Under this technique, game developers may create different product versions for their virtual goods based on branding (branded virtual goods), quality (an all-frill Santa hat vs. a simple Santa hat), utility attributes (4 days energy pack vs. 2 days energy pack), seasonality (winter – holidays, summer, Football Season, etc.), theme (set of Rock songs), and events (July 4th, March Madness) among other things. Game developers may also periodically create one-of-a-kind (per city/state/country) virtual goods to auction off as exclusive virtual goods or collectible virtual goods. Different product versions will allow game developers to capture different willingness to pay of their users.

3)      Second-hands virtual goods market: Under this technique, game developers may allow their users to buy or sell virtual goods in an ebay-style second-hands marketplace. This tactic will serve as both a social game mechanic and increase user retention by allowing users to refresh their content at a lower price point.

4)      Virtual Good Sales and Promotions: Under this technique, game developers may run in-game limited time virtual good sales during their slow usage times to spur in-game activity. The developers may also consider publishing coupons for their virtual goods outside the games (e.g. on social networks such as facebook for social games or on mobile networks such as Plus+ and Game Center  for mobile games) to attract new users to the game.

5)      User-Generated Virtual Goods: Game developers may sell modular virtual goods as part of their product portfolio. Such goods may be used by the gamers to combine and create new “personalized” virtual goods. For example, social games such as Mafia wars by Zynga may sell an in-game virtual gun and a virtual tattoo separately and allow its buyer to place the tattoo on her/his gun, creating an entire new user-generated virtual good. This tactic will increase user retention as well as spur additional virtual goods purchase.

6)      Trade-ins: Under this technique, game developers may allow their users to trade-in older virtual goods to purchase new virtual goods at a discounted price. This will allow the game developer to introduce another price point to activate users with even lower willingness to pay.

7)      Celebrity Player: Certain games may engage celebrities as players to allow its user base to play with famous celebrities. This will increase the stickiness of the players and may also increase their willingness-to-pay for certain virtual goods.

8)      Region-based pricing: For games that operate across countries or large regions, the developer may consider charging different price points for virtual goods to users across countries or large regions with different willingness-to-pay.

9)      Mixed bundling: Game developers should consider bundling different type of virtual goods to leverage different willingness-to-pay among users. For instance, if gamer A is willing to pay $0.99 for an avatar and $1.99 for a pack of two songs and gamer B is willing to pay $1.99 for an avatar and $0.99 for a pack of two songs, setting $0.99 price for avatar and $0.99 price for the pack of two songs and selling individually will generate revenue of $3.96 or pricing both at $1.99 will generate a revenue of $3.98. On the other hand, if the two virtual goods were to be bundled and sold for $2.98 each, both users will buy and the revenue will be $5.96.

10)  Reward program: Game developers should consider incorporating a reward program for increasing user retention. Gamers may earn points for hours spent playing games and use these points to buy in-game virtual goods.

11)  Group discount: Developers may introduce group discount such as buy one virtual good and get another for free for your friend (currently not a gamer) to both spur in-game activity and acquire new users.

In conclusion, the right combination of the above mentioned monetization models and tactics will ensure that together it offers a wide variety of price points and product versions to eliminate each user’s barrier to purchase and capture, ideally, each user’s willingness to pay to better monetize a game.

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“De-virtualize” the Virtual world: Effective monetization of mobile apps and games

If you’ve ever played a mobile game or “checked-in” at a location using a mobile app, the chances are that you are well aware of virtual currencies and incentives; if you are an avid mobile games/apps user then you probably hold honorary virtual “mayorship” on foursquare for one or more locations and/or have accumulated a hefty bank balance by renting your virtual properties on mytown. Given the upward trending usage of mobile apps such as foursquare (100MM checkins) and mytown (3.1MM users), it shouldn’t come as a surprise that virtual incentives have been quite successful in driving heavy consumption behavior, mainly, because they appeal to the basic human desire to be rich (virtually own several real world properties) and famous (virtual mayorship of several locations). But whether such virtual incentives and currencies will continue to be successful in driving consumption and stickiness is very much a topic worthy of discussion. The evidence is apparent from the fact that more and more mobile apps are incentivizing their users not only by virtual world currencies but also by real world offers, deals, and coupons. Not to mention, the real world offers and deals not only reward the users in the real world but also allows the app developers to monetize their application. I call this phenomenon – “de-virtualization of the virtual world”.

Several mobile ad platform startups are currently competing for marketers’ dollars and app developers’ attention by pitching their mobile ad platform as the best in class to drive customer acquisition for marketers while providing high eCPM (effective Cost Per Million Impressions), CPC (Cost Per Click), or CPA (Cost per Action/Acquisition) rates to app developers. In my own 1-on-1 interviews with the business development and sales VPs/Director, I found that the CPC and CPA are dominant among the pricing models and could range from $0.15 to $40. Not unlike few, I believe that the key constituent in this model is the relevancy of the offers. Relevant offers help consumer find great deals, marketers target prospective customers effectively, and mobile ad platform startups drive higher click-through and higher action rates through their app developers’ network – it’s a win-win-win-win proposition.

So, the question is how to make offers relevant? MobiQpons, a location specific mobile ad network, claims that their ad platform ensures relevancy using –

  1. Geo-Location: By knowing the location of its app users and its mobile app partners’ app users, the company’s offer engine is able to deliver offers within the geographical vicinity of these users.
  2. Offer usage history: The offer engine is aware of a particular user’s views history, click-through history, and offer usage history with respect to time of a day and day of the week. Using this information, the engine is able to filter through and serve offers with higher likelihood of click-through and/or action by the user.
  3. Context: The offer engine allows the app developers to specify a category and a keyword in its offers request to match the context of a user’s activity at this time. For example, if you user is playing “mytown” virtual monopoly game and buys a Mexican restaurant, the app developer may send a “category=restaurant and keyword=Mexican” offer request to the offer engine and receive offers and deals for Mexican restaurants in the geographical vicinity of the user.
  4. Favorites / Ratings: The offers or deals API user interface allows the users to mark a particular merchant as favorite and/or rate a particular offer or deal. This furthers the knowledge about the type of offers or stores that are more likely to prompt a click-through or an action from a particular user.

I believe that the factors stated above are bound to increase relevancy of offers for consumers and produce higher customer acquisition rates for the merchants (Disclaimer: I am currently consulting as the Marketing and Business Development Lead for MobiQpons). With great relevant offers and deals that are linked closely to users’ mobile interaction and flow of the day, app developers are more likely to retain/increase user base and monetize their apps while rewarding their users. Irrelevant banner ads prompting users, for instance, to join a “spiritual following” when the user is trying to locate a burger joint in a neighborhood only act as irritating distractions that are less likely to increase users’ app stickiness or any action on user’s part. Even better proposition would be to create a virtual currency that crosses over to different types of apps and games, and allows its holder, the user, a certain varying percentage off of transactions across various brick and mortar retailer and merchants.

Scenario: I as a mobile apps and games user have SCVNGR mobile game, Booyah’s mytown mobile game, and foursquare check-in app on my mobile phone. I play scavenger hunt and buy virtual goods on SCVNGR, rent my virtual properties on mytown, and check-in frequently using foursquare. I also enjoy Mexican food and buy electronic gadgets. My virtual currency that is valid across all these games and across virtual and the real world allows me to do the following:

Rent property on mytown :                               +10000

Buy virtual goods on SCVNGR:                            -1000

25% off at a local Mexican restaurant:                 -2500

25% off of $50 purchase at a local Best Buy:      -5000

Remaining virtual currency balance:                     2500

Such currency may truly “de-virtualize” the virtual world.

It’s Not Just The Content!

On July 21st, I had the pleasure of attending the Geo-Loco conference in San Francisco, CA. With the theme portraying geo location as the next big thing in advertising, social media and discovery, the conference was a great opportunity to mingle with some of the leading advocates, investors, preachers and practitioners of location based services (LBS). Fred Wilson of Union Square Ventures emphasized on the difficulty of engaging millions of consumers with LBS; while Seth Priebatsch, CEO, SCVNGR and Keith Lee, CEO Booyah shared evidences of how games can be utilized to not only drive millions of LBS consumers, but also produce sticky behavior. Other discussions claimed the narcissistic human behavior as the growth driver for some of the popular check-in mobile apps such as foursquare and Gowalla; still others addressed the privacy concerns around LBS and how startups in the space could make money. All this buzz and my various one-on-one discussions with the LBS gurus and CEOs of up and coming startups got me thinking about which LBS business models could provide long term value to its customers and investors. This blog entry is my attempt to portray one such model.

Perhaps, the right place to start is not the business model but the problem that needs to be addressed. The “old mantra” for acquiring and retaining customers can be summarized in these lines – bombard customers with advertisements and offers irrespective of whether these offers are relevant or timely. This worked well in the past, especially, for print newspapers and magazines since there were fewer channels for audiences, seeking information on what’s new and upcoming and who might be offering deals in product/service category of their interest. With the proliferation of distribution channels and advent of smart search engines, the search took hold as a new medium for reaching targeted customers. Under the “search mantra”, the engines display advertisement and offers when an intent for a service or a product is revealed (user performs a search). Because the intent is known, the advertisements and offers under this model are relatively more relevant and timely when compared to the “old mantra”. Although, the search-supported ads continue to work well today (~72% of Google’s revenue), there is another phenomenon currently underway that may displace the customers away from the search – the phenomenon called social media networks. The obvious signs are the Facebook’s growing 500MM user base, foursquare’s recent growth ,and Twitter’s staggering performance.  This combined with the proliferation of mobile devices and location specific mobile applications have led to a new challenge – how to engage the audience that is highly mobile, extremely busy, don’t like to be interrupted, continues to trend towards spending lesser time searching (see graph 1), and prefers spending more time socializing.

Graph 1: Facebook.com vs. Yahoo.com vs. Google (source: compete.com; accessed: July 29, 2010)

In essence, the advertisers – the local merchants and the large national chains – who continue to deploy highly fragmented print publishers – the newspapers, the magazines, and the large printers – and the online search engines to generate leads and drive the foot traffic to their businesses are at loss in engaging the audience that increasingly relies on their “social connections” to assess and make decisions about its next purchase.

Herein lies an opportunity for someone who can aggregate the ad and offer content published today in thousands of print publications and online, and deliver this content on piecemeal basis at the time it is requested (anytime), at the place it is requested (location-specific), and in the form it is requested (application-specific). That someone should be able to bring together content from thousands of publishers and deliver it on demand to millions of consumers – think of admob of location based services. I believe that this model is best suited to provide the solution because it addresses advertisers as well as “social consumer” needs. The model allows the advertisers to reach the “social consumer” with their ads and offers when she needs them most (delivered on the go rather than distributed at a fixed source), where she needs them (while checking-in at a location using foursquare, Gowalla, or Geodelic mobile app or while reading reviews on her Yelp mobile app) and in the form she needs them (dollar amount discounts or winning virtual currency in the virtual game world that can be equated to certain discount in real world currency).

There are some innovative startups that are in pursuit of this very solution and have actually garnered interest from the constituents, the publishers to aggregate the content and the app developers to feed the content to their users who are socially engaged on their apps. Given the mobile nature of the aforementioned audience, the more innovative startups are concentrating on the geo location based mobile apps to engage their target audience. The geo location apps that have been successful in rallying millions of consumers have also been successful, and rightfully so, in receiving high-flying valuations and funds from the venture community. Although, the same is not true in the case of “content aggregator/deliverers”, I believe, it is no longer a question of whether they will succeed, but when they will succeed.

To be, or not to be on a Cloud?

There are several resources, online and offline, dedicated exclusively to explain what is cloud computing. Videos from GoogleTechTalks and aggregated information on cloud community websites such as CloudTweaks do a great job at helping anyone get up to speed with the cloud computing concept, its trends, and its latest developments.

In this blog entry I discuss the drivers of cloud computing innovation, the benefits of cloud, the fear, uncertainty, and doubt (FUD) factors associated with cloud and, finally, enumerate the factors that will fuel the growth of cloud, leaving you to decide whether cloud is for you and your company.

Although, cloud computing may refer to software-as-a-service (SaaS), platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS), collectively referred to as everything-as-a-service (XaaS), in my view, it is primarily fueled by innovations in hardware infrastructure. Hundreds or, even thousands, of connected servers scattered across various server farms (Google Platform) around the world have resulted in virtually unlimited computing power, giving rise to services to rent out the unused computing power to the companies that are in need but cannot afford on site solutions. To such companies, cloud computing can afford platform, infrastructure, and software at 1/3 the total cost of ownership (TCO) as compared to on site solutions with the ability to scale up or down at lightning speeds, higher reliability in terms of up time, low maintenance overhead and accessibility at all places, all times, and to all individuals. This could result in speeding innovation cycles at fast growing firms, managing seasonality without incurring extraneous costs, reducing time-to-market in order to stay competitive, increasing overall employee productivity, and lowering overall IT cost and complexity.

However, cloud is not all silvery. The fear of losing critical data, the uncertainty around the data ownership and portability, and doubt created by diverse regulatory environment are working in tandem to hinder the adoption of cloud computing. The solutions and services offered in cloud will need stronger security features, and transparent ownership guidelines in order to mitigate data privacy and confidentiality concerns. The governments around the world may even have to work together to establish regulations around cloud and data in cloud to ensure that they are not in direct conflict with each other. Continuous innovations in cloud such as private cloud will play a crucial role in mitigating a lot of these security and privacy concerns.

Despite these concerns, I believe that within next 5 years majority, if not all, of our professional administrative computing will be on a cloud and all anyone will need is access to a smart device to connect to a cloud to carry out these activities. On the product side, cloud will expand to enable a diverse set of technologies and emerging business models that are not feasible today. Enterprise collaboration will be one of the most pivotal functions served by cloud. It will enhance collaboration beyond productivity tools to include cross-cultural collaboration and even automated content management for its users. Some of this is a reality even today; consider Google Apps’ integrated translation bots. At service providers’ end, the companies with large server farms, such as Google and networking equipment manufacturers such as Cisco will emerge as the market leaders because of their asset base and capabilities to deliver services (solutions and applications) optimized specifically for their hardware. At the buyers’ end, the fragmented nature may not be able to exert as much influence on its service providers but that will be solved by the formation of associations to administer and dictate terms on cloud and its service offerings.

Finally, I, along with Cisco, believe that adoption in cloud is a question of when and not if. The initial adoption will be motivated by need to be cost effective and agile, and enhancing IT’s responsiveness to fast changing business needs. Cloud will handsomely empower IT to enable faster business transformation and help its company to stay competitive and innovative. Now, it is up to you decision maker – to be or not to be on a cloud.

Electronic Coupons Startup + Social Media Marketing = Profitable Network Externalities

E-commerce coupon startups such as Groupon.com, GroopSwoop.com, Mobiqpons.com and LivingSocial.com, which serve both the enterprise customers (the SMB merchants) and the consumers, strive to create large network externalities in order to provide value proposition for its merchants and its consumers, thus, driving revenue growth. However, the service that promises great deals to consumers and low cost customer acquisition to SMB faces the classic chicken and egg problem. SMBs are willing to sign up and offer great deals only if there is a critical mass of targeted consumers signed up already to receive offers. And the consumers are willing to sign up only if there is a critical mass of great deals offered already.

This blog entry aims at providing a plausible solution to this problem utilizing social media marketing techniques, professed by many popular online marketing gurus, including David Meerman Scott. The strategic plan and the operational tactics proposed in the blog are applicable to both consumers and SMB merchants, here on referred to as buyers.

At the organizational level, the primary goal of any for-profit startup is to drive revenue growth. Every strategic initiative undertaken by a startup must strive to achieve this goal. With this goal in mind, the e-commerce coupon startups should devise a social media marketing strategy as part of its overall go-to-market plan. The companies should first analyze their current incoming website traffic and any other buyers they plan to target. This analysis should include secondary (internet, publications, industry reports, etc.) and primary (interviews) marketing research to learn and record comprehensive information about their targeted buyers. Next, using this information, the buyers should be segmented into a set of consumer and SMB merchant personas. These personas are created based on their differences in targeted buyers’ goals, aspirations, problems, social media preferences, words and phrases used, image and multimedia preferences, and current publications read among other aspects. Such detailed information will allow the startups to fully assimilate its targeted segments. Using this information, the overall segment size and projected growth, the companies should develop a set of quantifiable goals (specific growth rates in specific time frames) for each of its targeted segments.

In order to achieve these goals, a content strategy should be put in place to provide solutions to the problems of its targeted personas at the time and the place (media preference) they are demanded. That is, instead of directly talking about the ease of its SMB facing application to its targeted merchants or talking about the number of deals available to its targeted consumers, the companies should create content that provides solution to broader problems. For instance, the companies may create bi-monthly newsletter for its SMB owners to provide insights on proper inventory management, how to avoid food spoilage, and other topics of concern in small business environment. Similarly, the startups can create blogs and Facebook groups catering to consumers seeking entertainment tips or spas in San Jose, or create tweeter presence to micro-blog best sandwich places, best bars, best clubs, best restaurants, and best local spots in San Francisco. By either creating or plugging into such online communities, the companies will be able to get better attuned to its buyers’ problems, and by providing valuable problem-solving content, it will be able to establish a strong trust relationship with its buyers. This will lead to the creation of a faithful following of prospective consumers and merchants who will perceive the startup as a source of trusted information and will be eager to do business with. The startup that is able to effectively execute of this strategy will be able to differentiate itself from the rest of its competition and overcome the aforementioned chicken and egg problem.

Social Media “at Work”

On March 15, 2010, Hitwise reported that Facebook surpassed Google in the US to become the most visited website of the week. Edison Research recently concluded that 87% of all Americans are now aware of Twitter – up from 5 % in 2008. A video put together by Erik Qualman, author of Socialnomics, reveals another 30 interesting stats concerning social media.

Instead of questioning whether Social Media is a fad, this blog entry attempts to address how Social Media can be utilized at work to enhance employee collaboration and productivity. And, perhaps, by raising some thought-provoking questions, the blog attempts to support that Social Media is in fact more than just an intense and widely shared enthusiasm.

Let’s start by breaking down Social Media into specific elements and identifying leading businesses that provide services catering to these elements. It can be argued that some of the basic elements of Social Media include blogging, micro-blogging (such as quick status updates, link sharing, and following/followed), in-network and out-of-network communication, wikis, and videos. Some of the leading online businesses that provide such services include Facebook (micro-blogging), Myspace (micro-blogging), LinkedIn (in-network and out-of-network communication), Wikipedia (wikis), YouTube (video), WordPress (blogging), Twitter & Digg (micro-blogging), and Google Wave / Buzz (micro-blogging). Effectively, these services allow their users to reach a much larger audience compared to if the users were not using the services. These services extend and fatten, what I call, “the collaboration long tail”.

Traditionally, only a few people could connect with a large number of people (narrow end of the tail) while the majority were restricted to few connections (thin and long end of the tail). Social media has changed this paradigm by allowing both a large number of individuals to connect with a large number of people (fattening the vertical narrow end of the tail) and a bigger majority to connect with a moderate number of people (fattening and extending the horizontal long end of the long tail).

What if these services were to be replicated in an enterprise environment? What if an employee had an internal website with a LinkedIn-style profile page that showed not only her name and contact information but also what she has been working on? What if anyone in the company could access her profile and leave her a quick message (like as if it were her Facebook page), initiate a video chat, find out her current projects, find out her professional affiliation (Marketing/Engineering) and interest group (New Product Ideas/Opera-goers) affiliations (like on LinkedIn profiles)? What if her project team had a secured virtual workplace on this website, where she could post updates on a wiki, send messages to entire group (or a specific individual), or just share interesting news? What if she could collaborate to crowdsource a product idea from anyone across the company or leave a blog entry or a short message about her issues or her findings? What if she could access this website through a browser or a mobile device? What if all this seamlessly integrated with her desk or IP phone and email system? (In fact, companies such as Socialtext and Box.net are striving to provide the very services)

In summary, will creating awareness about her professional activities, about her interests, about her affiliations, about ways to reach her, about who she is as a person, enhance her collaboration in an enterprise? You know my vote. Feel free to express your perspective.

Freemium and Free Trial – More than marketing models for Web 2.0 Startups?

It is my deliberate attempt to label Freemium and Free Trial as marketing models and not revenue models because, unless combined either with a direct revenue model such as subscription or with an indirect revenue model such as advertising, these models merely generate prospects. In order to justify my point of view, allow me to present my understanding of Freemium and Free Trial. Under Freemium model, some parts of an application are always free; such features may be constrained by usage frequency (number of hours per day), users (users per session), certain transaction (number of emails per day), or storage limit (maximum storage). Users have to buy a paid version to remove such constraints. Free Trial, on the other hand, allows a user to use fully-featured product for a limited time period. After the trial period, the user has to purchase a license to continue to use the product.

Freemium, the more recent of the two models, has been gaining momentum with the advent of Web 2.0 technologies. The reason is Web 2.0 technologies allow the companies to appropriate the benefits of the goodwill created by free use of an application, provided it is useful and well received by its users. Users who use and either like or dislike the application often blog, tweet or even upload elaborate videos, informing the world about how the product measures up to their expectations. The resulting word of mouth may generate significant traffic on product’s company website. Similarly, Free Trial model is no different than Freemium model in its ability to generate buzz about a product, resulting in surge in traffic. Both models are very effective in generating prospects in terms of high traffic on a company’s website; however, as I claimed earlier, there needs to be a revenue model in place in order to either convert these prospects into paying customers or to monetize the traffic indirectly.

Said that, I believe the choice between a Freemium product and a Free Trial product (and even a free product) is as important as the choice of business model for a startup company. Entrepreneurs must invest time in understanding and making a conscious choice about their business model and the product marketing model before tossing out even a product beta as a Freemium or a Free Trial. Important considerations must be given to the targeted users needs and behavior, type of user – consumer or enterprise, customer retention strategy, market size and growth, competitive products in the market, product differentiation, revenue model – direct or indirect and pricing strategy. Analysis of these aspects may even reveal a need for a completely different strategy – free product – supported by advertising based or a micro-transaction based revenue model (such as the one followed by Zynga).

Some of the companies using Freemium model successfully are LinkedIn, Skype, and Flickr. Other using Free Trial are Salesforce.com and most of the anti-virus companies such as McAfee. Each of these Freemium and Free Trial companies has a subscription-based revenue model. Still other companies such as Pandora, which started as a Freemium product, give away its product for free to generate large amounts of traffic on their website. This traffic is monetized through ad-based revenue model.