Our favorite VC blogger, Fred Wilson, described his favorite business model in a post back on March 23rd. Jerid Lukin, from Flatiron portfolio company Alacra, came up with the name: the Freemium Business Model.
Fred described the Freemium Business Model like this:
Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.
We are experimenting with the Freemium model with the Big in Japan toolset. Presently we are quitely releasing each tool (PodServe was first, second came elfURL, then a reskinned FrankenFeed, then InstantFeed, then QwikPing and currently in demo mode is FeedVault and soon to be released is SocialMail and MailFeed) in quite alpha/beta. Once we launch the complete set of tools we will launch our ‘pro’ or premium level paid service offering for each. The idea is to always offer a free version of each tool. Hopefully our Freemium model will work as well as other great tools like Flickr, Skype, Trillian, Newsgator, Box.net, and webroot.