For Some Web Startups, Freemium Is the Way Forward

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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