How to Make Freemium Subscription-Based Business Model Sustainable in a Long-term?

Martin Sanitra & Ziwei Jiang

Student thesis: Master thesis

Abstract

Freemium business model is becoming increasingly popular and the market grows incredibly fast, especially in fields of music- and video-streaming and cloud storage. Due to the lack of research, freemium is held back from becoming a valid strategy. Current research is inconclusive about the effects of difference between free and paid version of a service. In addition, previous scholars state the impact of the ability to create customized solutions for users depends on users’ usage. The aim of this research is to find out the way to make freemium subscription-based business model sustainable in a long-term and establish freemium as valid a strategy in subscription B2C markets. Based on the literature review, motivation to subscribe, user conversion and retention are three key points to explore. Multi-method qualitative research has been conducted to develop theories related to these areas. Customer journey and customer value hierarchy frameworks are used to develop theories and conclusions. Analysis of focus group interview and individual interviews with students in Danish universities demonstrated that the main motivations of upgrading to premium services are functionality and ads removal while the main barriers are low premium fit and the concerns about transparency. The results indicated that bundling and versioning are good ways to apply the lock-in strategy which works well in increasing both conversion and retention rate. Results show, that companies adopt freemium model should take customer as priority, try their best to create and improve the value of subscription. Different lock-in strategies can help to increase the retention rate in various industries. KEY WORDS: Freemium Subscription Business Model, User Conversion, User Retention, Lock-in strategy, Switching Costs, Service Orientation, Interaction Orientation, Versioning, Bundling, Streaming Services, Cloud Storage Services

EducationsMSocSc in Service Management, (Graduate Programme) Final ThesisMSc in Business Administration and E-business, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2019
Number of pages120
SupervisorsXiao Xiao