Some emails on the Freemium section in the lecture material for Tekedia mini-MBA Week 3. The fundamental premise why I had suggested that a Freemium-based business in Africa without a Double Play is faulty is as follows:
- Building a website with enough traffic to boost those two coefficients in my break-even traffic equation is tough, for advertisement to make sense. With supply of contents unbounded, it is a hopeless strategy. Google last month cut earnings by 50%; you need 2x traffic or clicks to earn what you could have earned in Dec 2019.
- Freemium model is based on a faulty acquisition plan, copied without strategic thinking from U.S. In U.S., the key thing is to acquire new users who already have resources to afford your product. Once you acquire them, there is a likelihood for conversion (i.e. they become paying customers) due to inertia (i.e switching cost is high, for e.g. to change a bank account). In Africa, most times, your customers do not even have the means to afford that product. So, if you give them free, they come, but once you turn the paywall, they leave,not because they do not like the product but rather they do not have the money to pay!
- But if you have a double play, you can offer freemium in one product, and then monetize in the other product. For example, make an ecommerce marketplace free but all payments must go through your fintech subsidiary. From the fintech, you will make your money via transaction fee while the free marketplace accelerates growth faster. That is double play there.
Sure, if you run an NGO, nothing stops you running a freemium model; any day you run out of cash, you fold. But if you do not want that outcome, find a way to ensure customers pay, no matter how small.
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