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TechCrunch reports on Chris Anderson’s presentation to the Y Combinator’s Startup School about Freemium Business Models.

Anderson likened freemium to handing out muffins on the street to entice people to start eating your muffins. But with muffins there’s a significant cost to giving away each muffin. With digital goods, you can give away 90% of your product for free, without any cost for those goods.

Anderson outlined some of the models he’s seen for Freemium models.

Feature limited
Gives users real utility initially, then they convert if they want it even better. But this also means that you have to build more features (things people would want to pay for). And you have to maintain multiple products.

Time Limited
Easy to do. But there’s less commitment and engagement.

Capacity limited
Easy to do (e.g. limit the number of megabytes in a Email box), but it doesn’t always work for a product.

Seat limited
Easy to do. But it doesn’t work for every product, and people can ‘cheat’ by only purchasing a few seats, or segmenting company into lots of 5 person teams so they’re free.

Customer Class Limited
Bizspark is free to businesses if you’re under 3 years old, less than a million in revenue. Once you graduate you pay. This is easy to implement, but harder to enforce. Anderson says that Chinese Pirates had a similar model with Microsoft — Bill Gates said that China was developing, if they were going to steal software, they’d rather they steal Microsoft’s software, so they develop for Microsoft.

Photo by citr.ca.

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Originally posted by Rich Whittle on November 11, 2009 in Ideas.

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