The Freemium Business Model Does it Work

The Freemium Business Model Does it Work
In a world where advancements are made every day, conscience efforts are given to affect change in the most peculiar ways. If a look backwards were to be taken one could see that from medicine to television changes that could have never been thought of, exactly were that, thought of. Creations are made and ideas are born. One direction that is always a consideration is how to attract more consumers into a specific market without scaring them away and turning a great revenue at the same time. While businesses advance as technology does at times, both are intertwined. With the advancement of technology including 3-d screens, descriptive color patterns and certain psychological focus points that attract a person’s unconscious mind to a specific product, the advancement of business practices must be the same in attracting certain detail of a product to that of making a person wanting more or feel as though they are receiving a special offer. Even if for a limited time. Many people who partake of services want the most up to date and the most opportune times available within today’s abilities. Granted, at a much faster pace, always on the move and too many appointments to complete in one day, the most is the best in the most convenient ways.
More and more often than not, what is seen are special ads such as with premium channels on television; HBO, Cinemax or Starz all offer certain time frames for free viewing. The hope is that specific movies or portions of series, widely televised and known of are played. The attraction is the commercial free often uninterrupted ad shows and no want to fast forward is at hand. With the ability to watch these channels for a week or two, depending on the free service offered at that time, allows a person to like what they are seeing with the end result of wanting to purchase or enter into contract with the specific channel series. The company stands to gain certain percentages such as HBO playing a week long free show time. At the end of the week the anticipation is set at the lowest of an eight percent increase in new customers. At a rate of viewers previously at twenty three million with an eight percent increase at the rate of 15 dollars per month nets the cable channel an increase of twenty seven million six hundred thousand more dollars per month. This idea of offering a free service or free preview of what is inside allows for a well-established opportunity to those who otherwise may not ever have the desire to join. So, a question remains, if the ability to just give a little sneak peek is all that is needed, why doesn’t this avenue of approach within business always work and why doesn’t all businesses who offer an item or service partake of this type of business platform?
In this paper, a look at the case study “Pandora and the freemium business model” will take place. This paper will look into defining what Pandora was and is currently as well how they started out with a business idea. A few questions will be asked concerning that of Pandora and the specific business model this company utilizes. First question, to compare Pandora’s original business model with its current model. Second, to explain that of the differences between what free is and what freemium revenue models are. As well, does the free revenue model still have a particular prominence in e-commerce? Third, why it is that Mail Chimp did succeed with freemium models while Ning did not succeed? Finally, a conclusion will be formed which will refer to the value placed on freemium revenue business models as worked with Pandora.
Case Study: Pandora and the Freemium Business Model
Pandora, a radio service offered on the internet. By merely entering a particular artist, genre or specific track, Pandora has the ability to create a personalized radio station dedicated to the music that you, as an individual, love. The site offers abilities to rate specific music and artists that are co-located within your station which leads to creating and building a stronger and larger station that was designed specifically for you (Pandora, 2016). Pandora was started over ten years ago utilizing an algorithm designed to take the songs you listen to and match to similar music by genre, artist and types of music the listener will enjoy. The options available will cost a little money while the majority of music listening is free. Did Pandora start out this way or did Pandora intentionally feel this was the final direction they wanted to go?
A company founded by Tim Westergren over ten years ago, Pandora based off a radio format ability utilizing four hundred separate tags (Laudon, 2012). The original plan was for Pandora to link to other music companies and allow those listening to gain that access, but failed at this attempt as the data set was based off a WEB 2.0 platform not allowing or communication between other servers such as Yahoo and AOL at the time. While working through and even losing money for the first few years, Pandora hit a breakthrough (Laudon, 2012). By creating subscription based service customers could look into samples of what is available. Offering several hours per month and then wanting a small investment per year for continued listening. This action did not pay off for Pandora as many people wanted to listen and not invest since everything was turned off when the hours of free listening ended (Adams & McCrindle, 2008). This action made for Pandora, who still believed in the service, to change the business model into what is known as a Freemium Model.
Freemium model refers to what is known as giving a specific product for free to those who want to partake of the service. While the initial or portion of the application is free to the customers, other areas of the service are not and would cost some money. Certain music or the ability to download a specific song had to be paid for, in this case ninety nine cents. (Laudon, 2012, p. 107). The ability to have this business model allows the user to view and witness what is on the application before investing monthly or annually. Pandora offers music and creation of personal stations but there are ads that present themselves after every third to fourth song. With a purchase or subscription there are no ads only music which was aligned by the usage of and likes of the user (Pandora, 2016). By changing the business model as Pandora did, in one year there was a 52% increase in subscriptions (Laudon, 2012). This was the start of a successful return for Pandora.
Comparison Pandora’s Original Business Model with its Current Model
The music world is relatively free for anyone wanting to listen to the sounds. The ability to pick and choose, bypass or pass on certain songs and immediately retrieve something else that may be more suited was a gift to many people listening. Pandora knew this and attempted at exploiting what it is that people wanted. What Pandora attempted to do in the beginning of their service was to get people interested in the music and ability to pick what and when they wanted to listen. After a few hours, 10 hours to be exact, Pandora then took the ability to pick and choose away. The customer could get this back by merely paying thirty six dollars per month but the question remained why anyone would want to pay for the ability to listen to music when it was free on regular radio (Laudon, 2012, p. 107). The only difference was that the listener could not pick and choose what it was exactly they wanted to listen to. This first idea was not catchy to those not wanting to pay the extra money.
With the repeated failures for Pandora, after limiting the amount of listening time before mandatory purchase, Pandora brainstormed to see why it was that people were not biting on the new concept. Finally Pandora looked at and into Freemium. Finally customers have the ability to continuously listen to the music of their choosing as well music matched by a particular algorithm set to their designs (Panettiere, 2010). This service was free but still had ads included and mandatory commercials after three songs. The availability to be more comfortable in their listening environments, the customer still reserves the right to pay thirty six dollars per year to alleviate the ads and commercials (Laudon, 2012, p. 108). This fee also increases certain bandwidth for listening and downloading of specific songs the subscriber enjoys the most. If, with research and thought provoking ideas, Pandora, actually invested the time and energy in the Freemium model, there could have been more lucrative years for revenue as opposed to losing money the first couple years. Freemium is a value that many subscribers want and enjoy the ability to have what they want with the possibility of making better for a price.
Explain the Differences between what Free and Freemium Revenue Models are
Freemium is a package deal where there are specifics of a program or an application that are offered for free. The ability to gain a service or, in the case, listen to certain music for free whenever you want to. But, there are premium services offered at a cost such as no commercials or no ads, things that take up too much time in between songs or specific tracks one may enjoy (Laudon, 2012, p. 107). A freemium service offers basics for free while charging money for all of what is offered. Example of this would be Microsoft word program.
Most anyone who gets a computer will have to upload and download programs. For students, using word documents is mandatory in order to succeed and be successful through school. Microsoft owns a word document utilized by most programs. Unless purchased with the computer there will need to be a license purchased to download the program in order to write and form papers for students. Free service would be to give away this license for one computer as part of a program such as student programs (Microsoft, 2016). This would be a basic service installed on the computer allowing for basic access to the functionality. Freemium service would be to allow a person to try the program out such as for Microsoft Windows for three months. Opening the programs for limited access, basic functionality on the word document and regards to Power Point presentations certain backgrounds will be visible and open for utilization. If the user would want to keep the service or utilize other available options located on the word document or Power Point presentations board then a premium price would need to be paid either monthly or for the license to use on a specific computer. This shows a difference between free and freemium revenue models.
Why did Mail Chimp Succeed while Ning Failed
Pandora is a company that has over 80 million users to date and adds approximately 600,000 new subscribers weekly amounting to one new subscriber almost every single second of the day. This is in part due to the luxury they provide by way of a service. The audience is what allows Pandora and this business to succeed. Offering a service that people like then allowing for upgrades to completely make this service invaluable to one person, equals an unmatched guarantee that most want. Mail Chimp allows for an email service that is free to send many emails to many people. This service is useful to a small company perhaps home based in a small rural neighborhood and a small store catering to the same neighborhood or incorporated town to a large scale company such as Bank of America who will send out multiple emails to hundreds and thousands of people while waiting to scan for feedback, which person or how many people clicked on a specific link in a specific direction or even who made a specific purchase based off the value of the email (Laudon, 2012, p. 105). A service as this is a small as needed or as intricate as needed depending on the need of the business. Resulting in spreading small flyers of upcoming events to offering specific deals to members or potential new members. Ning was a failure, regarding the use of a freemium service due to not everyone as involved in the startup or operational capacity of a socializing and networking site. To grow a site as social networks one will invest, most likely, into the future upfront as opposed to offering free with a possible upgrade.
Conclusion
In conclusion, there are many ways and opportunities that allow a business to succeed or fail. Taking an opportunity and exploring options allow for lessons learned but also allow for the future to be written. If a company does not attempt at multiple styles of business models then the future will not be known or potential to be more successful may be shortened. Pandora, a business that started out small and had failures but secured a thriving future by allowing the freemium model to arise. In this case, Pandora, was a success and continues to thrive by allowing a free service with up gradable properties. The idea is to listen to music and have music that one enjoys, this is what Pandora offers.

References
Adams, A. A., & McCrindle, R. J. (2008). Pandora’s box: social and professional issues of the information age. Hoboken: John Wiley & Sons
Laudon, K. C. (2012). E-commerce: Business, Technology, Society. Upper Saddle River: Pearson Prentice Hall/Pearson Education.
Laudon, K. C. (2012). E-commerce: Business, Technology, Society. Upper Saddle River: Pearson Prentice Hall/Pearson Education. (p. 106-110)
Pandora. (2016). What is Pandora. Retrieved from https://help.pandora.com/customer/portal/articles/182180-what-is-pandora-
Panettiere, J. (2010). Free and Freemium Managed Services: What's the Business Model? Retrieved from http://mspmentor.net/sales/free-and-freemium-managed-services-whats-business-model