Value Creation in Freemium Business Models: A Study of Freemium Business Models in the B2B Market

Gunnhild Øistensen Holthe & Karen Elisabeth Langø

Student thesis: Master thesis

Abstract

The freemium business model, referring to the combination of free and premium offerings, has in later years become increasingly popular as a way to create value for companies operating in virtual markets. Most literature on freemium models has been conducted in the business-to-consumer (B2C) market, as the use of freemium models in business-to-business (B2B) transactions traditionally has been rare. A number of non-academic articles argue that the freemium business model will fail to create value in B2B markets as business customers are less prone to a viral spread and lack trust in the quality and security of free offerings. However, as a result of changes in the software industry, a number of start-ups and established firms operating in the B2B market are today utilizing the freemium business model. Thus, the question of how these offerings survive and create value is becoming increasingly relevant.
As there is limited prior academic research on freemium business models in the B2B enterprise software market, this thesis takes an important step in exploring this research area. A conceptual model for value creation from a business model perspective is used as a baseline for the research. The model is qualitatively tested through interviews with four companies. The findings imply that a freemium business model creates value in the B2B enterprise software market by increasing transaction efficiency, creating lock-in, employing complementarities as well as adding novelty to the offering. This is interesting as it contrasts prior literature on the subject. We find that the freemium business model enables firms to utilize a bottom-up approach to customer acquisition, which serves to greatly eliminate challenges with B2B complexity. Two mechanisms are central in this approach; versioning with zero prices and network effects. Versioning with zero prices reduces adoption barriers as it enables individual employees to start using the offering for free. Network effects serves to effectively spread adoption of the offering and attract complementors.
The findings of this study make a distinct contribution to the extant knowledge of freemium business models in B2B relations. The study is important as an increasing amount of companies compete by structuring their offerings through freemium business models. Focusing academic attention to this field might eventually lead to a better understanding of the different drivers of value, and bear important implications for firms utilizing a freemium business model.

EducationsMSc in Management of Innovation and Business Development, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2016
Number of pages128
SupervisorsStefan Henningsson