Once upon a time, business was easy. You created a product, put a price on it and sold it. Competition either tried to make the product cheaper or with different features so they looked like the better option.
Nowadays, times have changed a little. Online marketing is just as important as traditional offline marketing. With the sprawling nature of the internet, all of a sudden small brick and mortar shops are faced with online competitors and are eager to find a way to stand out from the competition.
One easy way to stand out from the competition is to adopt the “feemium” business model that has worked so well for apps creators and mobile game developers. Freemium simply means to offer something for free to bring the traffic into the store or office and then focus on upselling the clients with additional services or items.
Let’s explore how this works in the online world of apps and mobile games.
How Do Game Developers Make Money?
With the increased adoption of smartphones and tablets and apps, sites like iTunes and Amazon’s app store, prices have dropped to typically 99 cents per sale, if not less. How does one make any money in mobile game development?
Volume is the obvious answer, as the “Tablet Market and Smartphones Market: Global Database & Forecast (2010 – 2015)” report from Transparency Market Research states, global tablet sales for 2011 is at 67 million, and smartphone sales are at 469.9 million, and that’s just from one year. Even with product sales to just a sliver of that market, 99 cents could lead to a boatload of money. And if the money from sales isn’t enough, mobile ad networks make ad sponsored apps a reasonable alternative.
With prices as low as 99 cents, how can you make money going any lower? That’s where the freemium model comes into play. The word “freemium” comes from combining the words free and premium and involves basically giving your product away, making money off the sale of advanced features and services.
With the freemium model in a mobile game app, users buy tools like a gold sword instead of the regular silver sword or perhaps an oven that cooks 20 percent faster. The actual cost for one of these features is minimal, a little time and effort from a graphic designer. You then repeatedly sell the new option at just a little expense, and watch the money pile up.
Successful Freemium Stories
The freemium model has had its share of success stories, the biggest being the billion dollar IPO of Zynga, popular social game designer and creator of the Farmville phenomenon. In Farmville, people harvest crops and Zynga makes money from an in-game store that sells tools to do tasks faster or make the farm look prettier.
Freemium also doesn’t limit profits. With typical software sales, you sell the product and get all the revenue up front. With freemium, instead of just making $1 (less the sale’s cut to the store) from the initial product sale, an in-game store can sell something, like extra lives, repeatedly.
That’s how Electronic Arts made their money with Bejeweled Blitz. According to a recent NY Times article, the free Bejeweled Blitz game brought in five times as much money as the $1 original Bejeweled version. In the same story, you can also see how mom and pop shops are getting in on the action, too.
Future of Mobile Gaming
Freemium is the future of mobile gaming. According to analytics company Flurry, in June 2011, 65 percent of Apple’s App Store revenue came from in-app purchase options. Users want to kick the tires before turning over their hard-earned money. Unless an app offers something unique, like your bank offering a way to deposit a check, users are more apt to pick a free download than pay 99 cents to try it out. If it is any good, they’ll stay around. Then, you monetize the relationship.
All in all, freemium is here to stay. The big unknown is how many people can be converted to paying customers. If you make a good enough product and offer reasonable upgrade options at minimal cost, there’s a good chance that many will convert and you’ll make more than you would have with a paid version.
How Does Freemium Help Brick and Mortar Businesses?
The Freemium model goes well beyond that of simple gaming platforms. Brick and mortar establishments would do well to look at such models and build the needed customer experience in order to attract both new and old applicants.
In a recent study, 42 percent of consumers purchase products and services after experiencing them for free. The trial and experience generated by personal use ensures the customer develops a better sense of recall and encourages them to share their experiences through word of mouth.
In essence, the “free trial” is a better ad than a simple banner or PPC link because the personal interaction automatically breeds a sense of loyalty. Examples of brick and mortar applications can be as simple as a:
- free orthodontic or medical consultation
- free legal advice on a set day and time
- free appetizer from a local restaurant
- free 8×10 photo from a photographer
- free real estate consultation
- free week-long pass to a local gym
When the customer comes in to claim their free item, the business owner should have other items to sell. If the overall experience is pleasant for the new customer, then they will likely return and quite possibly refer your business to their friends.
The over-arching theme is the experience. Utilizing the freemium model is paramount in market competition given the consumer can (and will) research most of the data themselves regarding whatever service or product they desire or need.
Joseph Baker has worked in the business world for over 15 years, specifically in management. He has led development and management teams, and implemented budget reductions both professionally and as an independent contractor. In his many years of experience within the business world, Joseph went from acclimating corporate America to social marketing trends to developing marketing/management strategies for small business. In addition, he has led strategic planning and systems of implementation for nine organizations, both public and private, and worked extensively with small businesses.
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