Competing on Freemium: Digital Competition with Network Effects

Kevin J. Boudreau, Lars Bo Jeppesen, Milan Miric*

*Corresponding author for this work

Research output: Contribution to journalJournal articlepeer-review

Abstract

“Freemium” product strategies—where a free basic version of a product is offered alongside a full “premium” paid version—are often used by companies to attempt to increase the size of their user base and benefit from network effects. However, there is limited empirical evidence of how this strategy impacts company performance. We investigate empirically how the strengthening of network effects on the Apple App Store influenced the revenues generated by market leaders and followers, contrasting firms that use paid only versus freemium strategies. We find that stronger network effects did not on their own lead to greater revenue for market leaders w.r.t. followers. However, in settings where freemium strategies were used, network effects greatly amplified the advantage of leaders over followers.
Original languageEnglish
JournalStrategic Management Journal
Number of pages42
ISSN0143-2095
DOIs
Publication statusPublished - 2 Dec 2021

Bibliographical note

Epub ahead of print. Published online: 2 December 2021.

Keywords

  • Digital industry
  • Freemium
  • Network effects
  • Market dominance

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