Freemium Business Models for Mobile

In this continuing series of blogs about Mobile Data Monetization*, let’s look at the Service Provider Freemium business model, which involves offering a basic service for free (indefinitely, or for a trial period) to incent some other subscriber behavior that the operator can monetize. Let’s look at the typical reasons that operators have in offering a Freemium service:

1.) Encourage users to upgrade up to a higher-price, higher-quota mobile data service in order to get the Freemium service. We’re seeing more and more of this approach, especially in conjunction with LTE service offers. For example, in the early days of Verizon Wireless’ LTE roll-out, it offered a free 1-year subscription to NFL Mobile Premium to drive subscriber upgrades from 3G to its LTE data plans and smartphones / Mi-Fi devices. Now, with the adoption of LTE services well underway, Verizon Wireless is leveraging its significant investment in NFL content rights by offering NFL Mobile Premium as a Freemium service to users who opt for one of its new “More Everything” pricing plans. In many markets where mobile data usage is low, some operators have taken to offering “zero-rated” usage of popular social media sites such as Facebook and Twitter for a period of time, usually 6 to 12 months, during which the data used does not count towards the subscriber’s monthly quota. The goal of this approach is to get the user accustomed to using these services over mobile so that he or she subscribes to a data plan at the end of the Freemium period.

2.) Entice users to eventually pay a premium for a more advanced, feature-rich version or for a higher quality of service (QoS) level for the Freemium service. This is a ubiquitous model for Internet applications and services. Dropbox, for example, is a good example of the freemium-to-premium business model, with several million paid users among its 200 million overall users. Hulu is another example of this much-studied and debated business model for Internet services. Frankly, there aren’t enough examples of this approach in mobile data to determine its success or popularity going forward.

3.) Attract new users to migrate from a competitor’s mobile data service, in some cases by also zero-rating the usage of the Freemium service. We note that T-Mobile’s Music Freedom service launched in June this year doesn’t count streaming music service usage against customers’ mobile data plan quotas. Music Freedom, which includes well over 10 services such as Spotify, iHeartRadio, iTunesRadio, Rhapsody, Pandora and many more, is part of T-Mobile’s wider campaign to win new customers from competitive LTE mobile operators by shaking up wireless industry conventions. In this case, the Freemium aspect is to eliminate the data usage charge from mobile music streaming.

The capabilities of Cisco’s Mobile Policy and Evolved Packet Core solutions enable operators to offer Freemium services that bring monetization benefits, namely:

Increase marketing effectiveness of service bundle offers or the success of a special promotion by offering unlimited access to popular services at no charge, and