Is Freemium really successful: The story of Skype and Facebook

How does one really build an organisation- should it be on the lines of one great idea? If we consider the bulk of organisations around: almost many of the them do not really have a unique idea. Furthermore, should one change the business model that made it successful? “Free” is a very powerful disruptive force in the market place which can create unforeseen growth and opportunity for any product. Twitter is a prime example of how free companies can create value for shareholders while not seeking a single penny from the users. However, many companies start with a free model before switching to paid or switching to a freemium model. The article focuses on the concept of Freemium businesses and their effectiveness.

The first example that I would like to consider is that of Skype. In real terms this product created a disruption in the market by challenging operators like AT&T. The company was finally acquired by Microsoft for around $8.5 billion USD. Skype follows a freemium based model: PC to PC calls are free whereas PC to Phone calls gets charged. In fact according to various estimates this model helps it to keep spending on its R&D and forms the bulk of its revenues. So is it really a good idea considering that its popularity was primarily due to its free service? Microsoft has plans to integrate Skype with Outlook in future, so in all probability Skype may cease to remain free. VOIP market is bound to see lot of action in coming decade as even Google is also targeting this segment with its launch of Google voice.

Newspapers and Media is another sector that provides some interesting insight. Considering that news and information should be free and accessible to most, yet most of us are quite open to the idea of paid news. In fact, it is here that we judge by the quality of content: We do not mind paying thousands for Harvard Business Review subscription, while we remain critical of whether to spend few hundred while subscribing local magazines. I wonder why we do not want information to be free and insist on free premium quality news magazine. In fact, even the media house might make more revenue through advertisement revenues if adopts a completely free model due to higher circulation.

Facebook has recently announced plans of launching a premium ad-free service for its users. The reason Facebook became popular was that it was free to use. If we compare with LinkedIn which follows a freemium model, the value proposition in the two cases are totally different: Facebook is purely for socialising whereas LinkedIn is purely for networking. The timing of Facebook’s intention is even more significant: Its shares are trading at 50% of its IPO price, there are serious concerns being raised about its revenue model and Samsung set to launch its own version of social network to challenge Facebook. Can it succeed?

Google is probably the prime example of how successful a “pure” Free player can be in today’s world. It appears to have solution to every need in the online space and with some interesting new products like Schemer and Google Now up its sleeves; this definitely appears a company to watch out.

Businesses do change their line of business through diversification; however the intent of few companies to change the very pillar of the idea that made them successful is something that needs to be watched out. It is interesting to note that it comes at a time when the power of being a free player in the market is widely recognised. So are we witnessing a paradigm shift in how business will be done in future particularly in the internet space?