Freemium pricing is a revenue model for digital products that combines free and paid offer parts.
In this two-tier revenue model, the core product is offered free of charge, while premium versions / add-ons (e.g. extended functions, more storage space or virtual goods) are only available for an additional charge. A well-known example is the streaming provider Spotify, which offers a free version with integrated advertising and reduced functionalities as well as a premium version without the integrated advertising and all functionalities.
Customers are thus differentiated based on their willingness to pay. This form of revenue generation is particularly common in the software, web services, media and e-games sectors. With the help of the free basic service, the companies’ intention is to acquire as many customers as possible and to turn them into loyal customers. If the free version does not contain too many features which are free of charge, this also increases the probability of winning paying customers for additional features.