Date of Completion

Spring 5-1-2019

Thesis Advisor(s)

Liping Qiu

Honors Major

Finance

Disciplines

Business Analytics | E-Commerce | Finance and Financial Management

Abstract

This thesis will examine the rationale and financial success of “freemium” applications versus traditional applications. I define what the “freemium” model is, and how it compares to the traditional (premium) and “free trial” models. In addition, I discuss the value proposition of the business structure, and how it is fully dependent on the consumer’s ability to perceive an increase in value through the purchase of additional features. I also analyze the major positive and negative aspects of the “freemium structure.

Overall trends that I note in the paper include a general shift towards “freemium” and “subscription” based products; within the game subsegment, specifically, we see corporations succeeding with the “freemium” model. In addition, one emerging trend prevalent as of recent times is companies failing to offer a value proposition that is satisfying enough to its consumers.

This thesis also includes several financial analyses; notably, why the popular “freemium” battle royale game Fortnite outperforms its paid competitor PlayerUnknown's Battlegrounds (PUBG). In addition, I evaluate companies which have had successful or unsuccessful experiences with the “freemium” model, whether from switching models or initially adopting it. MailChimp switched to a “freemium” model and found its paying customer base grow significantly, whereas Ning struggled with implementing the “freemium” model and adopted a traditional model. Some metrics I analyze include changes in the composition and raw amount of revenue and customer base, as well as the reasons why the “freemium” model proved to be successful or not for a business. Ultimately, if implemented correctly, the “freemium” business model might just be the disruption a company needs to revitalize its performance.

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