Can You Make a Fortune With Freebies?

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Published May 14, 2012

| FOXBusiness

If you’ve got a new product or service that you’re trying to sell, you may want to think about giving it away to begin with. In a new survey, 42 percent of consumers said they pay for new products and services after they’ve experienced them for free. The so-called "freemium" business model is the way a pantheon of marquee brands, from Ancestry.com to Words with Friends, first gained traction in the marketplace.

The freemium business model involves giving away a basic version of a product or service (usually a digital offering such as software, games or web services) for limited use, but charging a premium for long-term use and advanced features, functionality, or related products and services.  Freemium offers are a key to success and market penetration for new and emerging products or service categories, according a study by the research arm of iYogi, a computer support services company, which surveyed more than 2,000 of its customers.

All respondents indicated they had tried free samples of a wide range of products and services in the last two years, and 39 percent said they had also experienced freemium one-on-one consultations with experts for various services, including career coaching, energy savings, nutrition and fitness, tech support and Lasik surgery.

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Movies and videos have had the greatest success with the Freemium model, the survey found, with an overall conversion rate of 57 percent from freemium to paid subscriptions.

Conversion rates were highest among first-time users; 68 percent of them said they subscribed to movie or video streaming services after the free trial period. Fifty-four percent who'd sampled free productivity tools for the first time later signed on for the tools, and 51 percent who'd tried free cloud services later paid for them.

"The Internet has led to the launch of a wide range of innovative products and services that change the way we interact with and use media and other goods," said Vishal Dhar, co-founder and marketing president of iYogi.  "People often don't realize the value of these products in their everyday lives until they actually try them, especially if they have to use their hard-earned money to access them. This new research reveals that a free introductory offer goes a long way in unlocking the value of a new product or service and leads to higher acceptance among potential buyers. In fact, pioneering services need to use a freemium if they want to achieve their business goals."

Reach BusinessNewsDaily senior writer Ned Smith at nsmith@techmedianetwork.com. Follow him on Twitter @nedbsmith.

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