The New, 'Freemium' Customer
The new digital business model is also shaping a new style of customer, if you believe Wired's Chris Anderson. "The Long Tail" author outlines the 'freemium' business model at California's Revenue Bootcamp Conference, explaining what will persuade someone to pay for something they've previously got for free:
First, you have to 'entice' rather than extract money from people. But what will entice people to pay?
The best approach is to ring-fence the best services or opportunities so users make the choice to upgrade themselves -- you might start using photo-sharing site flickr for free, but realise it's worth paying a small fee for the more extensive offering on flickr pro.
As a provider, you need to know which buttons to press in order to entice customers into paying. Different lures might work for different customer groups -- and that's where the model starts to look shakier.
If there's consensus on valuation, though, Anderson believes it creates a virtuous service circle: customers 'self-identify' and upsell themselves, while acting as evangelists for your brand as well.
So what will people pay a little extra for? Anderson identifies five:
- To save time
- To reduce risk
- For things they love
- To attain status
- If you make them (once they are hooked)
It seems it would only make sense if there were consensus on the value of 'intangibles -- when does knowledge come at a premium?
Is this why people will pay handsomely to read the Economist, but would baulk at paying for news?
The model as it exists today may not stand up to too much scrutiny (see Malcolm Gladwell's review for arguments that counter the Free idea) but it is likely to evolve. And it should definitely encourage businesses to reconsider what their customers really want.
(Pic: 4_EveR_YounG cc2.0)