DEFINITION of 'Freemium'

Freemium is a combination of the words "free" and "premium" used to describe a business model that offers both free and premium services. The freemium business model works by offering simple and basic services for free for the user to try and more advanced or additional features at a premium. This is a common practice with many software companies, who offer basic software free to try but with limited capabilities, and is a popular model for game companies as well. All people are welcome to play the game for free, but additional lives or special game features are only unlocked when the user pays for them.

BREAKING DOWN 'Freemium'

The freemium business model allows users to utilize basic features of a software, game or service free, then charges for "upgrades" to the basic package. It is a popular tactic for companies just starting out as they try to lure users to their software or service.

Freemium Examples

An example of a freemium business model is Skype, a company that allows you to make calls over the Internet. Their basic service is free, but for more advanced services you have to pay a premium. Another popular freemium game several years ago was Candy Crush Saga, which allowed users an allotted number of lives within a certain timeframe, but charged for extra lives if you wanted to play more during that window of time and had used up all of your free lives. Freemium games and services can catch users off guard, as they may not be aware of how much they (or their kids) are spending on the game, as payments are made in small increments.

RELATED TERMS
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s ...
  2. Razor-Razorblade Model

    The razor-razorblade model is a pricing tactic in which a dependent ...
  3. Net Premium

    Net premium is the expected present value of a policy’s benefits ...
  4. Net Premiums Written

    Net premiums written is the sum of premiums written by an insurance ...
  5. Advance Premium

    An advance premium is an initial premium paid to bind an insurance ...
  6. Game Theory

    A model of optimality taking into consideration not only benefits ...
Related Articles
  1. Insights

    3 Ways Companies Profit From Virtual Goods

    A report released in late 2011 predicts that the market for virtual goods will reach $2.9 billion this year.
  2. Tech

    How The Video Game Industry Is Changing

    Video game creation has become increasingly complex, and the cost of creating a game to run on one of the major consoles has risen with this greater complexity.
  3. Tech

    You Love Video Games, But Do You Know How The Industry Works?

    Traditionally, the video game industry was limited to consoles, such as Microsoft’s (MSFT) Xbox and Sony’s (SNE) PlayStation, but it now includes PC games, mobile games and, in the near future, ...
  4. Tech

    Play Video Games; Become A Millionaire

    New ways to benefit from this industry have emerged over the last few years. The best part is, they're very profitable.
  5. Investing

    Top Video Game Stocks for 2018

    Three video game stocks on an uptrend with gains expected to continue in 2018.
  6. Personal Finance

    The Best-Selling Video Games Of All Time

    Video games are selling better than ever before, but how can investors get in on the action?
  7. Investing

    King Digital vs. Zynga: Who Will Win the Mobile Gaming Market? (ZNGA, ATVI)

    Find out who is going to win the mobile gaming war between Zynga and King Digital. Learn how the acquisition of King by Activision Blizzard plays a part.
  8. Tech

    Global Video Game Sales to Reach $91B in 2016

    New research from SuperData shows global interactive entertainment revenue up for the year.
  9. Investing

    Game Stop Tanks Over MSFT's 'Netflix for Games'

    Game Stop stock fell after Microsoft announced a Netflix-type service for its Xbox games.
  10. Investing

    Alibaba Plans to Enter China's $11B Games Market

    Alibaba is doing an about face and is entering the games market with a new business unit.
RELATED FAQS
  1. What is the best software for calculating the cash budget of an individual?

    Explore the options and features of several leading personal finance tools to find the best software for calculating your ... Read Answer >>
  2. How do I calculate insurance premium tax?

    Find out how your health insurance premiums can affect your income taxes, including when you may be able to deduct premium ... Read Answer >>
  3. What are some examples of free market economies?

    Hong Kong, Singapore and Australia are examples of free market economies. Read Answer >>
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center