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.

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