Freemium: The Web2.0 Business Model Gets a Name

Fred Wilson, of A VC blog, wrote about his favorite online business model recently and asked readers to help name it. The winning name was Freemium. It’s a model that works great with service-based Web offerings — 37signals has all but perfected the Freemium model — and now it has a groovy name as well. I doubt the name will catch on like web2.0 and Ajax has, but it’s nice when you can attach a name to an idea.

What you’re really wondering, though, is what the newly named business model is. In Fred’s own words…

Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.

It won’t work for everybody, though. There might be a small handful of content-based sites that could pull it off, but for most, they will need to look at ads or some other way to produce revenue. Many of the sites I’ve written about recently (Dabble DB, FeedRinse) are banking on it to work for them, though. In fact, the majority of these sites are 100% free or using the Freemium model.