Freemium Model

A business model that combines a permanent free tier with paid premium options. The term is a portmanteau of “free” and “premium.” Freemium products monetize a small percentage of users — typically in the single digits — whose payments subsidize the free majority. The model is most successful when the free experience is valuable enough to attract a large user base and the premium features are desirable enough to convert a fraction of that base. Freemium economics depends on a low marginal cost of serving free users and a high conversion rate among those who reach the activation moment.

Example: Spotify’s ad‑supported free tier provides access to millions of songs with limitations on skips and offline listening; a fraction of those users convert to Premium for an ad‑free, unrestricted experience.