I read today that the US MVNO, Freedompop, is coming to the UK this summer. This news coincided with my reading of ‘The Curve: Turning Followers into Superfans’, which is dedicated to understanding the possibilities of the freemium model.
The author, Nicholas Lovell, approaches the subject from his experiences in the gaming industry. It’s a fascinating book which cuts across many verticals and describes the freemium model and its dependence on having customers that he describes as ‘Superfans’. Lovell describes this approach as engaging with as many customers as possible, initially via a freemium model, and continually providing new opportunities for customers to spend, which drives them up “the curve” to reach Superfan status. These Superfans may be a little as 10 percent of your base but they’re prepared to pay - and in some cases handsomely - for your products. In a few examples, Superfans generated up to 80 percent of revenues! Now that’s what I call taking a fast curve!
The book demonstrates how the freemium model can work in markets such as music, gaming and publishing. This is largely due to digitisation and the disintermediation of the challenges and obstacles previously in place which inhibited getting these products to market.
After talking with analysts and industry experts at the recent Smart Data Forum in Princeton and the MVNO World Congress in Nice, I’m not sure anybody could agree whether Freemium is a model on which to drive a mobile business. The balance of paying subscribers versus freeloaders would have to be maintained above 30 percent of the overall base, and you’re unlikely to be supported at the very high end with the loyal hard-core 10 percent Superfan base. It remains to be seen how successful this model is to churn (without constantly moving into new territories).
In my view, freemium demands a more long term approach. It must generate revenue from fans who value different points of personalisation on the back an emotional attachment, as opposed to the shorter term building of subscriber volumes without the emotional attachment to the brand.
Current examples of freemium mobile models are based on minimal margin Wi-Fi VoIP access, which is great if you live in an urban area but where I live (in the depths of Wales), we don’t have hotspots (well actually, I am the hotspot!). These models are based on data-only wholesale agreements, with the MVNO only paying for the data that their customers consume. This is a big benefit compared to many other MVNOs.
To remain lean and agile, freemium brands employ more social channels in their marketing and customer care, plus existing customers are incentivised to help the brand grow the base, so driving down customer acquisition costs.
A typical initial free offering (up to 500Mb) is a possible alternative to basic prepay, or as a back-up to your agreement with an existing provider. But in all practical sense, credible data offerings must match the volumes and new services offered with LTE. So as average levels of consumption increase quarterly, and demands for more sophisticated digital services evolve, will the offering look differentiated or disruptive? If you listen to Ovum, they maintain that in the US, only 7 percent of subscribers to LTE are on plans offering up to 500Mb (the majority are on 2-5Gb and growing). In Japan – another mature market – this figure drops to 1 percent.
So freemium in telco.... What’s it good for? Absolutely nothing? That said, the model seems to work for a few operators (see Choozze Mobile in the Netherlands and Republic Wireless in the US), and operators seem happy to stand back and watch the results.
I’m not convinced that the freemium approach will succeed in disrupting the market. My gut feel says the low level of stickiness with customers and the real minority high end revenue customers may not materialise. But it’s fascinating and worth keeping an eye on it.
So where I do see freemium opportunities is as an agile method for operators to experiment with new products and services. Using freemium can encourage customer involvement in product development, and helps operators gain an understanding of what customers value, before launching premium versions of a product. It’s one of the many tools available to operators evolving to become a digital service provider.
Do you think the freemium model is one you’re looking to deploy? Have you tried it and if so, what were the results? Does competition from freemium brands keep you up at night? I would love to hear your views on this – drop me a line at andy.peers@mdsglobal.com.