'Freemium' players can replicate Spotify's success by reserving mobility for their premium services, says Analysys Mason
"We believe that mobility has been the key to driving take-up of premium upgrades within Spotify's 'freemium' revenue model, and that other companies may be able to learn from Spotify's example," says Martin Scott, Principal Analyst at Analysys Mason. "The most significant inflection point in the take-up of Spotify's premium services was the introduction of support for iOS and Android-based handsets in September 2009."
A freemium business consists of two categories of service: a basic, free-to-use, often advertising-supported version of a service; and a premium version of the service that either has additional functionality or lacks advertising.
Other freemium players offer mobile versions of their services, including the business social network LinkedIn and the note-taking service Evernote, but many of these don't reserve mobile solely for the paid-for service. To date, LinkedIn has managed to convert about 1% of its users to its premium service, while Evernote's conversion rate has reached about 3%. Spotify only offers mobility with its full-priced premium service, which clearly differentiates it from the advertising-supported and lower-priced variants.
"Greater innovation is possible on mobile platforms, in the form of enhanced features. For example, LinkedIn could enhance its location-based services by enabling users to see a list of LinkedIn contacts that are in the same conference hall as them," says Scott. "However, service providers should reserve such enhanced mobile services for paying customers only. They might not seem quite as compelling as mobile music, but applying Spotify's strategy towards mobility may help freemium companies to disprove the dreaded maxim that only 1% of their customers will pay for their services."
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