An acquaintance of mine recently commented to me that "...startups that offer freemium services are doomed to fail..." Google defines freemium as follows: "Freemium is a business model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features." This would seem to settle the discussion, but the argument that was made was that the vendor is basically giving away the product. We see this today in various cloud service providers and especially so in SaaS providers.
Ultimately, this is true: a company with no revenue is not likely to succeed. However, a company with no customers is equally unlikely to do very well. The idea behind the freemium model is that users of the free product a) see the value of the product and decide to buy the premium version so that they are supported (freemium users may not be entitled to vendor support); or b) need access to some feature that is locked and only available in a paid subscription.
Logical, no? To an extent. Success as a vendor in this case is measured in the conversions of freemium users to paying subscribers. This metric, depending on the vendor's business plan, should be used to decide how aggressively the vendor should pursue users in order to try upselling the premium version.
The bottom line is this: customers will use a product for free, but for how long before they move on; vendors should upsell their customers and entangle them as soon as possible to avoid high freemium churn rates and to increase the conversion rate. The trick is finding the feature balance between the free product and the premium product.
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