The basic idea behind this model is that a company provides its customer with an initial free service. This will definitely lead to publicity through referral networks, mouth publicity, etc., and grow the customer base. And when the customer(s) comes back, the company offers the customer a premium priced, value added, service.

The Freemium model of business is the idea of offering a version of something absolutely free when there are other fee-based premium versions of the same product available as well. The idea to provide a free version is to make the lowest possible barrier of adoption. The aim is to achieve, as well as increase, the number in customer base, maintain a loyal and trustful relationship, and transfer some of these customers to the fee-based versions.

A business venture can earn huge profits by using Freemium business models, if used promptly and accurately. To gain profits, a business should have premium paying customers, which cover the cost of production, development, distribution and the marketing of the free as well as the paid products. This can be achieved if the marginal cost of production, distributing, marketing, etc of the free version is near zero. This will create a large customer base and there will be a transfer from the free premium versions to fee-based versions. The control mechanisms of the business should be strong enough and in place to preserve the premium value from reduction in the competitive market.

The Freemium business model’s find its use on the internet also and it has gained a lot of popularity among the start-ups. Internet provides low-cost marketing and a distribution medium for the digital products and data line, eBooks, software, videos, music, and virtual goods. At the same time, it also offers the customers to acquire referral networks, word of mouth, and low cost search marketing.

Read More about how to use FREE to market your business in the book: Free: The Future of a Radical Price by Chris Anderson It’s an eye opening and thought provoking book that will change the way you look at free.