Tech execs talk up iPhone 'freemium' models
March 30, 2010, 11:16am PDT | Length: 00:03:48
At mediabistro.com's Freemium Summit in San Francisco, mobile phone developers discuss how they’re using a freemium business model to attract users and monetize revenue to their iPhone apps. The freemium model is well suited to the mobile platform because Apple allows for the implementation of microtransactions inside their apps, the execs add.
>> In the short time that you've been on the iPhone platform you've evolved your business models, and we'd love to hear from you what that process has been like and what the motivations have been that have led you to, kind of, reconsider maybe a primarily premium strategy for something that's more of a blend.
>> Sure, so let me get started. I think, when we first launched on the App Store, we were a hundred percent advertising focused. And over time, we evolved a premium strategy where we had millions of users on a free game, and we would sell premium versions of the app. So we sold a premium version for Coldplay for Nine Inch Nails, for Lady Gaga. We just launched one, Justin Bieber, most recently, and this strategy was largely dictated by the fact that we wanted to have a lot of scale and a lot of users exposed to the company and our products, but we also wanted to make money. Part of the evolution that Clyde assumed spelling is alluding to over the last year has been Apple allowing us to do micro transactions and app payments inside the application, which has really enabled the premium model to take, the premium model in its purest sense where you provide a free product and you up-sell features or virtual goods inside the app. And since then, that's become probably the most, well has become the most significant part of our revenue stream and certainly the model that we're following going forward. Because with a hundred thousand apps on the App Store, it's very important we have scale and distribution power, and the way that you turn that into money is through selling things within those apps that you distribute on the platform.
>> We're best known, I think still, for a product called Rolando which was one of the first gen products on iPhone, on iPod Touch, and that was a 9.99 product. And we sold it, and it was critically acclaimed, and we made some money. People thought, they're gonna be a very successful company. We tried to do it again, and we realized that, actually, the returns that we were going to see, because of some of the pricing pressures in the economy, weren't going to enable us to get to what our objective is, which is being a company of consequence in the mobile internet space. That's what our aspirations are, and we realized that charging money once, largely once, for that single transaction in the paid space just wasn't gonna get us to the level of scale that our aspirations match. That isn't to say that the paid business can't match people's aspirations. It just can't match our aspirations as a defining force in the entertainment space. So what we did was we had a look at some of the data which we collated from launching free products early on in our life, and we realized that the scale that could be achieved in terms of the usage of free products was at least 10x in the paid space. So we set about thinking, you know, if we can monetize around usage, rather than monetizing around a single download, that can really unlock the potential that we wanted to get to for becoming that company of consequence. So that's what sped us into the premium space. It was really around this notion of usage and monetizing usage rather than monetizing purchase. And what it also does if you monetize usage is it almost un-tethers you from the other problem in the App Store, which Andrew alluded to which is this discoverability and this need to always be in the top 25. You don't have to always be in the top 25 if you can retain customers and continue to engage those customers who came in early on, and you adopt more of a service mentality.
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