You hinted at it with Box.net: The deeper a user becomes ingrained in the product their propensity to pay goes way up. I believe Evernote is another great example (see the recent NY Times article).

So the more important focus shouldn't be on delineating the feature set but rather getting the user to see and accrue value in your service and before long it's too late to go back.

The crack dealer gives away the same crack in the first free hit and doesn't just give away bad crack and sell good crack.

Agree that the paid model offers additional marketing tools – like affiliates. Also, having a successful paid model offers proof that your user experience and your marketing are effective, creating sponsor demand. May also generate premium from sponsor. Then the sponsor is paying not just for exposure but also for your expertise to develop an experience worth paying for and to market it. Not such a new phenomenon. Back in the day, it was typical to pay more for paid vs. unpaid circulation for a print publication. Additional magazines with high “time spent” and high involvement were more likely to generate higher response rates if the offer is relevant.

Regarding free vs. paid content (and I think the media properties with the most value will have infinite #'s of paid elements) . . . Free content should be an appetizer that makes the prospect hungry for more. It should be freely distributed all over the place (could be sponsored, sharing the revenue with the host sites), with a link back to a landing page to convert the curious to a paid, no obligation “snack.” The snack should be designed to establish credibility and the “can't miss” nature of content and community conversation. Once the snack is consumed, offer a paid subscription for real time updates anywhere. Folks who engage regularly should be invited to be members at a higher price. Once a member, there are special VIP offers, including tickets to live events, higher priced tickets for exclusive pre-event meeting with event talent, merchandise. Quality audience participation should be rewarded with credits towards premium content, events, merchandise, etc.

The caveat – for any of this to happen need a currency for the internet marketplace, as, for example, second life, and many kids social networks. But it needs to be universal. See post “Opportunity is Knocking” here: http://bit.ly/ba6rX

Katherine Warman Kern
@comradity
http://www.comradity.com

Personally, I think it's an odd approach. But perhaps that's just me.

Look at LogMeIn and GoToMyPc – very successful companies that are basically just paid versions of VNC/screen sharing built into modern OSs.

I don't see an issue with what you call cognitive overheard. People don't really think about the cost of an SMS before sending it, as long as the unit cost is very small. Clay Shirky has pointed out similar issues, where the user is forced into an endless stream of tiny decisions.

There is only one usage decision and corresponding dialog box for each service in the model. Think of it as an all-you-can-eat subscription where you get an (upto 100%) rebate for not using the service.

So if you can't find a clear line between the paid and the free versions – making the paid version do something useful but slightly unrelated to the free version would work too.

It seems to work remarkably well. In my case at least it only took a few days for the ads to annoy me so much relative to the quality of service otherwise that I paid for it.

The thought process behind it is at http://creately.com/blog/creately/beta-over-cre…

The thought process behind it is at http://creately.com/blog/creately/beta-over-cre…

Airlines charge a lot more for travel that doesn't include a Saturday-night stay. Why? Business travelers, who are more price insensitive, hate to be away from home on weekends.

This qualitative difference is much easier to leverage than a simple quantitative difference like price.

At PBworks, one of our “Saturday-night stayovers” is granular access control. Consumers don't need to keep certain parts of their wikis/workspaces hidden from others, but businesses definitely do.

The problem with micro-billing , at least from my own personal experience, is it has such a large cognitive overhead on users. Think of AOL back before it was all you can eat. People would jump on and off the get their email. Making the internet all you can eat created massive value overall (even if AOL itself didn't capture that value).

Here's the link: http://lmframework.com/blog/2009/06/freemium

Make of it what you will.

Give away the advanced version and charge for the simple version.

There are a just few examples of this “flipped” freemium model out there, at least that I can come up with.

Thanks for the great posts.