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Spotify's desktop app has gotten worse recently. 'BUY THIS SONG!!!' links everywhere do not make me feel more likely to subscribe to the Premium service.

According to the figures you have reported, admittedly very simplified, Evernote are making a loss.

You say they have 2 million users, 31,000 of them paying $5 per month, and the cost per user per month is $0.09.

31,000 * 5 * 12 = $1,860,000 income per year

2,000,000 * 0.09 * 12 = $2,160,000 costs (it costs to provide service to the free users, as well as the paying ones).

Just shows how hard it is to make a working "freemium" business model.

Remember that a new user can be a boon to Spotify as well as a cost since all the members ask as servers. More users, more servers in a BitTorrent fashion.

Spotify will probably fail because of music licensing fees.

A possible good example of the freemium model is Flickr.
You have to pay (around 拢15 pa) to upgrade to a 'Pro' account (there are a number of benefits); quite a large number of its regular users have chosen to do so.

This is of interest, because the online game I am involved with, like many others, sort of works along the same lines (though in my ignorance, I had not heard the term "Freemium")

You can sign up and play , or , for nothing and, in Wurm's case, with no time limits. However, there are restrictions to how high you can grow your character's skills which means certain aspects are out of reach. We also don't allow players to buy village deeds (using in-game silver) until they go to the premium servers - though this is mostly so the free server does not get to chaotic. Different online games have different restrictions.

We find it a really difficult balancing act to know how much to allow players to do for free and where to draw the line for moving onto the premium servers. The temptation is to just say, oh, there you go, have everything! But we need the premium money to keep the game running and we have no advertising in the game to compensate. (Although it's a Swedish designed game in English, someone else has already done a deal with Ikea!)

At the end of the day, we have to make the premium offering as attractive as possible without dumbing down the free game to the point where no one wants to play it. That is not being nice to customers, and customers are our lifeblood.

The main issue with MMOs like Wurm Online is that the style of game play is very much down to the players - so one set of restrictions might feel like luxury to one group, while feeling like hell to another group. Also, if you have a free offering, you are susceptible to being invaded by groups of players that can upset your regular players. These raids almost never produce premium accounts, unsurprisingly.

It is interesting to see the comment from Mr Libin that half of their subscribers leave pretty quickly. Actually, I think he has a good retention rate - as many businesses discovered with games like Second Life, the number of registered players in no way reflects the number of people who play. If you have a free side to your business, this will always be an issue. I wonder how many people signed to Spotify actually get round to using it on a regular basis.

From our experience, even when premium is low cost (5 Euros per month), and the lands are vast on the premium servers, many players are quite content with their small holding on the free server, and will probably never, ever move. But, they are still customers, and should be treated as such, and you hope that even if they never send you money, maybe a friend they introduce will.

A lot of finger-crossing goes on in this sort of business!

@ 2: That means they cover 85% of their income from paying users, leaving $300,000 per year to be foudn from advertising (to 2 million users).

The problem with this model is setting the monthly price for consumers at a level which is attractive to them.

I barely use Spotify yet, if it were 拢5 a month rather than 拢10, would be very tempted to subscribe. 拢10 a month is simply too much for a casual user.

The same problems exist in on-line gaming. The 'free to play' EA game Battlefield heroes used to earn revenue by charging real money to individualise players costumes. In the last couple of weeks however there has been revolution afoot as players have first protested, and then left the game in droves, as a consequence of new charging structures which badly disadvantage non-paying customers.

The 'free' element has to be excellent and the 'paid for' a convenience and a bargain, if we are to migrate across. There is always another place to go on the internet, and companies forget that at their peril.

The magic of moores law means that that 6p a month cost per user will half in a year yet the average customer will not demand there monthly fee halved.

For companies getting into freemium it's a gamble that they can survive long enough that falling costs will allow them to make a profit.

Peoples perception of the value of digital goods is falling each year but if you get in early enough get a large enough customer base that other companies would feel wary about challenging you can keep that monthly fee constant for quite some time.

Yes long term these ain't going to be profit factories but they should always be able make the money back the develop cost.

Ah the old "how can we con people into paying for something they are not currently paying for" routine...

Sadly there are enough sheeple to make it work.

I have no doubt spotify will succeed in doing this also.

Call it freemium or whatever you like, it still amounts to people being expected to pay for something that they don't start out paying for. Sadly there are no laws against this, probably because the law isn't written in favour of the consumer...

People need to realise that if something is free now it won't be in the future and that something should never have been offered for free in the first place.

Wake up people!

I think saying the people are stupid for paying for freemium apps is a idiotic thing to say.

In the past a large number of apps had a partly functioning demo version, a nome version and then a fully functioning pro version.

Freemium apps like evernote/picasaweb/flickr and many others are just a modern version of this with the level moved down a price step. Give users a good product with the option of more features in they pay a fee.

If your happy with the limited or ad sponsered version then your laughing. If you want the extra functionality then pay for the priveledge.

AS for the caluclations of evernotes profitability. I'm sure they are over the moon if they are even close to breaking even. Most web companies of this type look long term and don;t mind losing money for a number of years if they can see a point when they will be hugely profitable in future.

I think Spotify have been quite clever in identifying two key attractions for Premium, which don't necessarily map onto any of the Evernote features (although I don't know it well):
1) The chance to save playlists offline temporarily, then play them when without an internet connection. I commute by train and have regular signal blackouts through tunnels etc. I don't need to keep a playlist forever, just play it until I get bored and decide to set up some new ones.
2) iPhone (plus Android etc) app - this is a great target market because iPhone owners have already shown themselves to be interested in the new and cool, and willing to pay a lot of money for it. 拢10 per month might seem modest to many of these consumers.

I think this sort of actually quite traditional marketing - finding enough people who will think your product is worth what you charge, to make it profitable - is needed for new models such as freemium just as much as it always has been.

As Ian said in post 7 its too expensive for the casual user to upgrade to premium.

拢5/6 a month seems a nice price point to me.

Maybe they could offer a premium plus at 拢10 a month with more offline playlists combined with a higher bit rate for the connoisseurs out there and a cheaper 'premium' for the casual listener.

I enjoy spotify and use it a few times a month but for 拢10 I could buy a new cd online and have change left over.

Your right when you say Freemium is all the rage but also consider free. We are still awaiting twitters business model.

I have spent the past year researching the Free v freemium debate for a new book called Freesourcing:how to start a business with no money.

Freemium is the way forward for business application, get people to engage, encourage loyalty through excellent service and upgrade when your solution helps your clients to succeed. If its useful and solves a problem then it can help businesses and they will be willing to pay.

I am not sure about the long term effects of freemiumisation for the consumer model.

Jonathan

"10. At 11:53am on 04 Dec 2009, U14243592 wrote:

I think saying the people are stupid for paying for freemium apps is a idiotic thing to say.

In the past a large number of apps had a partly functioning demo version, a nome version and then a fully functioning pro version.

Freemium apps like evernote/picasaweb/flickr and many others are just a modern version of this with the level moved down a price step. Give users a good product with the option of more features in they pay a fee.

If your happy with the limited or ad sponsered version then your laughing. If you want the extra functionality then pay for the priveledge.

AS for the caluclations of evernotes profitability. I'm sure they are over the moon if they are even close to breaking even. Most web companies of this type look long term and don;t mind losing money for a number of years if they can see a point when they will be hugely profitable in future."

Oh I agree, if you want more pay for it, I wasn't saying someone is stupid if they pay for something.

However in the case of such services as Spotify offer something should not be offered for free at all, if it cannot be offered for free forever.

These companies who are offering such services know full well that they will become paid for services at some point, and yet they choose to con the user into thinking it's free until such a time as they wish to, or have to, slap on the fees, by keeping the fact that they will become paid for services as quiet as possible in the hope they get millions of users onboard.

And people fall for it.

So excuse me for thinking the general public are stupid for doing so.

@ZB: This assumes that the 2 million users they have are costing them money for 12 months - they may be quoting a figure which includes people not using the service and so aren't costing them much/anything.

I agree with SheffTim - Flickr is good example of a freemium service and presumably one which makes Yahoo money.

I've been a premium user or Evernote for at least a year and of Flickr for longer than I can remember. The fact is that I appreciate the tools I choose to pay for and as such I have a vested interest in them succeeding - otherwise I will have to allow several days each year just to move my data around from service to service - in the knowledge that the next will eventually fail.

$5 per month or $60 per year for a company to protect my data and make it available to me in simple and exciting ways that I would never have believed possible. Sorry - I fail to see the where or how I am being conned.

The key to Spotify is to grow big enough quickly enough that the music industry has no choice but to back it. It the only reason Itune survive.
Will it be able to grow to that size with the money it currently has from investors an money paid upfront by mobile companies only Spotify knows that.
Also longer it survives the cheaper it is to run an they will attract better an bigger advertisers.

Spotify I believe will survive if it can keep the cash coming in to grow to critical mass.

I like Spotify and listen to the free version most days. (I listen to 成人论坛 Radios 4 and 7 more, though.)

It's unlikely I'll upgrade to the paid version because Spotify doesn't have agreements to play music from bands like Pink Floyd, AC/DC, Led Zeppelin, The Beatles and Metallica.

A few comments on some other comments:

Chris: "Spotify will probably fail because of music licensing fees."

Are you sure? I once looked into the licencing fee for playing online music and - forgive me if I put the decimal point in the wrong place - it was going to be about 0.001 cents per track.

Ian Hawkins: "I barely use Spotify yet, if it were 拢5 a month rather than 拢10, would be very tempted to subscribe. 拢10 a month is simply too much for a casual user."

Yes, I wholeheartedly agree with you. Spotify is aiming at too high a price point with too few premium artists to justify it.

SpelunkingRaccoon wrote: "The magic of moores law means that that 6p a month cost per user will half in a year.."

Are you sure? Many of the costs of the service will not be costs affected by Moore's law. They will be costs such as such as salaries, marketing, office space, music licencing fees.

(Funnily enough, when I first saw this title, I misread it as yet another newly discovered element in the . ;-))

There are other issues than just money. Spotify is quite easy to use but ,Evernote if it is to be useful requires the user to work out how to make good use of it, and requires discipline! After all we have had the'desktop' for nearly 25 years now but how many people use it in a disciplined fashion. I hate filing!

For people who think Spotify is too expensive at 拢9.99 when you can access millions of songs and download 3,000 of them at a time to either cache on your PC or take with you on your iPhone/iPod Touch/Android smartphone... what planet are you on? How could it possible be less?

Actually it is less with one of Spotify's rivals Sky Songs, for 拢6.49 they allow you to stream millions of tracks AND downloads to keep 10 DRM-free tracks, or 拢7.99 for downloadable 15 tracks... so it basically cost the same as an album (best price) but you get the benefit of millions of streamed songs in addition to what they allow you to download. The only downside, is the current lack of mobile App, and something tells me it would never get approval by Apple for the App store, but if it does I'll subscribe like like a shot.

Interesting when the Spotify service is being critisted for being too expensive. What do you reckon is the fair price to pay for listening to music? If the answer is zero, then (ignoring the bloated record companies), how is an music artist to survive and create the music you want to listen to. Would you apply this business model to your own income?

I think this illustrates how music is now regarded having no value, yet we demand that we have access to it...

I was at a friend, who had his Spotify on, and asked me what I'd like to listen to. I found it quite difficult, and eventually asked for an old album I already owned. This set me thinking that the problem is actually too much choice. What people really want on a streaming service are DJ's who can choose the music for them. That is a radio station.

Beyond this, they want to download or have access to a playlist of the songs they like, non of which strictly need a streaming service. If I'm right this means that Spotify, ultimately needs to become an itunes.

Oh and by the way I've got over 4000 albums/CDs and I listen to a lot of music everyday. I guess I don't get it!