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Developing business ideas for drone technologies
Developing business ideas for drone technologies

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5.2 Freemium revenue model

This type of revenue model combines ‘free’ and ‘premium’; that is, customers can access basic features at no cost, but they have to pay a subscription to access further functions. Tech companies such as LinkedIn or Spotify use this revenue model.

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Figure 5 Linkedin, the online professional networking platform, employs the freemium revenue model

Under the free offering, firms get revenue from advertising income. They also benefit from understanding consumer preferences and their patterns of use; in other words, they benefit from user data.

Other benefits come from creating network effects, which are the benefits each user gets from interacting with a high number of other users. So, for instance, users will find a free networking platform more attractive than one that charges fees, which as a result raises the number of users on the platform. These users then benefit from being able to interact with a higher number of other users – very few people would want to join a networking platform with low numbers of users! This is an example of networking effects: the greater the number of users the higher the benefits for each user. Users find it challenging to switch to other platforms because it is hard to re-create the same network and not everyone in your network will join if you switch to a new platform.

Users can then also choose to pay a subscription fee and access ‘premium’ enhanced services. They still benefit by the high number of platform users. Ultimately, the free option provides the networking platform with a high number of users, which enhances its competitive edge.

Activity 4

Timing: Allow approximately 10 minutes.

If you haven’t already got one, visit Linkedin [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] and create a professional profile. Find the profile of the ICAERUS project and start following its updates. You might also want to connect with the leaders of the ICAERUS Use Cases and the new businesses funded by ICAERUS and start extending your network in the sector.

A variation of the freemium model is the social freemium model. A firm, or organisation, offers the same service or product for free to low-income consumers and charges those that can afford to pay. In this way technologies and services become available to those who would not otherwise be able to access them. This increases the availability of the service and reduces the risk of exclusion amongst groups who are deemed vulnerable. Dropbox uses this approach as premium users finance the infrastructure and content for all users (Lüdeke-Freund, et al., 2022). The BBC also uses this approach as specific parts of the British population, such as the retired, do not have to pay a license fee.