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Summary:

While web-based companies like Facebook and Twitter have yet to operate on earned income, a string of others have adopted the freemium business model, which involves offering a paid premium service in addition to what’s already being offered for free. Venture capitalist Fred Wilson outlined the […]

xobni_logoWhile web-based companies like Facebook and Twitter have yet to operate on earned income, a string of others have adopted the freemium business model, which involves offering a paid premium service in addition to what’s already being offered for free. Venture capitalist Fred Wilson outlined the attributes of the freemium model in a 2006 blog post, citing Flikr and Skype as examples of companies that had already embraced it. Xobni’s launch of its new Xobni Plus paid service today highlights the rise of the freemium model as companies look for ways to make money online.

Many startups have gone freemium over the years, among them Jott, whose service translates spoken messages into text and inserts them into email and other web services; online storage service provider Box; Evernote, which allows users to store notes in the cloud; career web site LinkedIn and Internet radio provider Pandora.

Xobni, which makes software that helps people organize their Microsoft Outlook accounts, has been planning to introduce a paid service for awhile. (For an outline of the new features on Xobni Plus, watch this video.). Co-founder Matt Brezina said the company was inspired by LogMeIn’s paid system and even received consulting advice from the remote services technology provider, which went public last month. Moreover, Brezina said the company was unwilling to take the traditional, ad-supported route. “When you build a business model around advertising, your customers are the advertisers, so you do things the advertisers want,” he explained. “If you build a business model around service products…the customers are the user and you end up giving the user what they want.”

But startups aren’t the only ones making the switch to freemium. Under pressure from cheaper and free services on the web like Google Apps, even Microsoft will begin offering a mix of free and paid services with Microsoft Office 2010. The free version of the Office suite of products, which offers less functionality than the paid version, will be available on Windows Live.

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  1. i think it’s great that freemium model become more popular. This way end user can somehow get use to pay small fee to use their favorite app. Right now, app users are used to do everything for free and now they can support their favorite app by paying. And of course the app developer will get more revenue to develop their app.

  2. Freemium is the wave of the future and more companies will embrace it to survive!

  3. Social Media Evangelist Thursday, July 16, 2009

    Freemium makes sense. How many clones can survive on free offerings?? I believe a site that charges a premium is more trustworthy than an everything-for-free site!

  4. Freemium is truly the way to go. I use it in my photography business and it has multiplied my sales. People learn to value the quality of your product and it creates a trust relationship which is so important for establishing a long-term business relationship with your customers.

  5. Free isn’t a problem, it’s an opportunity. | Taylor Davidson Tuesday, August 4, 2009

    [...] Engaging, educating, thinking, sharing, helping, competing: it’s the only way we’ll move forward. [...]

  6. Martin Thomas Monday, August 10, 2009

    Hi.. Your post got me thinking… What is more valuable for a software company (like facebook or flickr). 1,000 paying users or 100,000 non-paying users? What are your thoughts? View my blog post here: http://www.purlem.com/blog/?p=57

  7. How Freemium Can Work for Your Startup Tuesday, September 1, 2009

    [...] Since then, those three apps have become indispensable to me as well. And they all happen to be benefiting from the business model championed by venture capitalist Fred Wilson known as “freemium.” They’re not alone — numerous companies have walked down the freemium path since he first wrote about it in 2006, among them Freshbooks, Jott.com, Box.net and of course, the granddaddy of them all, Flickr.com. More recently, San Francisco-based startup Xobni eschewed the ad-supported model to go the freemium route. [...]

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