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. Advance Premium Fund

    Advance Premium Funds exist when Insurance companies who receive ...
  2. Premium Balance

    Premium Balance is the amount of premium that is owed to an insurer ...
  3. User Fee

    A user fee is a sum of money paid in order to gain access to ...
  4. Net Premiums Written

    Net premiums written is the sum of premiums written by an insurance ...
  5. Network Effect

    The network effect is a phenomenon whereby a good or service ...
  6. Advance Premium

    An advance premium is an initial premium paid to bind an insurance ...
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

    How To Game The Video Game Industry

    Investopedia explores the business, current developments, future trends of video games industry and how the overall industry makes money.
  4. Tech

    Is ‘Free’ Now the Best Price for Online Advice?

    For many investors, robo-advisors may be a better deal than traditional financial advisors, though they should know what kind of tradeoffs are involved.
  5. Investing

    Gaming ETFs Take Off

    The gaming industry is on the rise thanks to global hotspots like China.
  6. Investing

    How The Cloud May Boost Video Game Stocks

    Leading video gaming stocks have had a spectacular 5-year run, but cloud computing may propel them to even greater heights.
  7. Insights

    The Basics Of Game Theory

    Take an introductory look at game theory and the terms involved, and get familiar with backwards induction, a simple method for solving games.
  8. Investing

    Shopify Launches Ecommerce Channel for Gaming Companies, Integrates with Apple

    Companies are set to benefit further from a new in-store sales channel for branded products.
  9. Insights

    The 6 Most Famous Failed Video Game Makers (KING, ZNGA)

    The video-game industry pulls in $100 billion in revenue annually. Failed companies offer a cautionary tale.
  10. Small Business

    Top 10 Biggest Mobile Apps Of 2015

    The biggest mobile apps include games and social networking services.
RELATED FAQS
  1. What Is the Razor/Razorblade Business Model?

    The Razor/Razorblade business model comes from King Gillette, founder of the razor blade company. Learn how this business ... Read Answer >>
  2. How do Internet companies profit if they give away their services for free?

    Learn how companies in the Internet sector make a profit when service, content and user applications are offered at no cost ... Read Answer >>
  3. Why is game theory useful in business?

    The concepts of game theory became a revolutionary interdisciplinary phenomenon, but they are still relevant for business ... Read Answer >>
Trading Center