Free, paid and freemium in consumer internet

Edited excerpt from The First Law Of Internet Physics by Fred Wilson:

I’ve seen so many people try paid content on the Internet and the result is fewer users, a lot fewer. You can extract a higher average revenue per user (ARPU) from a paid model, but you get so many fewer users that it’s better to extract a lower ARPU with a free model and get many more users.

The rule: many users * low arpu >>>> few users * high arpu

I guess a corollary is that you can implement a freemium model on top of a free model and turn some of your users into high ARPU customers, but they will always be a small portion of the total number of users.

That’s a long way of saying that you can do paid, but you had better have a free tier first and foremost as most users will go for that. And if you put too much of your content behind a paywall, you’ve effectively turned your core product into a paid one and you are back to {few users*high ARPU}. So be careful with the freemium offering.

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