Case Study: How Spotify and LinkedIn use the reverse freemium model to drive revenue

by | Feb 2, 2023 | Case Studies, Growth | 0 comments

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Are you curious about how some of the biggest companies in the world are making money by giving away premium products for free? Look no further than the reverse freemium business model. In this article, we’ll be diving into a case study of how Spotify and LinkedIn use this innovative pricing strategy to drive revenue and attract customers.

Introduction

The reverse freemium model is a pricing strategy that involves offering a premium version of a product or service for free, with the option for customers to downgrade to a paid version with reduced features. This allows potential customers to try out a premium product before committing to a purchase, and can also generate revenue through downgrades and add-ons. The reverse freemium model is particularly effective in the software industry, where products can be easily distributed and tried for free.

What is the Reverse Freemium Business Model?

reverse freemium

Before diving into the case study of how Spotify and LinkedIn use the reverse freemium model, it’s important to understand what it is and how it works. The reverse freemium business model is the opposite of the traditional freemium model, where a basic version of a product or service is offered for free, with the option to upgrade to a paid version with additional features. The reverse freemium model allows potential customers to try out a premium product for free before committing to a purchase. This is beneficial for both the customer and the company. Customers get to try out a product before committing to a purchase, and companies can generate revenue through downgrades and add-ons.

How Spotify uses the reverse freemium model

Spotify’s use of the reverse freemium model has been a key factor in its success as a company. By offering a free version of their service with ads and limited features, they are able to attract a large number of potential customers who may not have otherwise considered using a paid music streaming service. One of the key features of the free version of Spotify is the ability to skip a limited number of songs. This feature is designed to entice potential customers by allowing them to experience the convenience and customization of on-demand music streaming, while still providing an incentive to upgrade to the paid version.

Spotify Premium, the paid version of the service, offers several additional features such as ad-free listening and offline playback. These features are designed to appeal to users who value a more seamless listening experience. Spotify Premium also allows users to listen to any song on demand, providing users with even more control over their listening experience. Once they’ve tried the free version of Spotify, many customers choose to upgrade to Spotify Premium, generating significant revenue for the company. This is a prime example of how the reverse freemium business model can be successful in driving revenue and attracting customers. Spotify’s use of the reverse freemium model has allowed them to become one of the most popular music streaming services in the world.

How LinkedIn uses the reverse freemium model

LinkedIn’s implementation of the reverse freemium model is a prime example of how businesses can use this pricing strategy to drive revenue and attract customers. The platform allows users to create a free profile and connect with other professionals in their industry. However, LinkedIn also offers a variety of premium features that are only available to paid users. One of the main premium features that LinkedIn offers is access to more detailed analytics on your profile and activity. This includes data on who has viewed your profile, how many views you’ve received, and how you compare to others in your industry. This information can be incredibly valuable for job seekers and professionals looking to expand their network.

Additionally, LinkedIn offers several other premium features such as the ability to see who has viewed your profile, the option to send messages to users outside of your network, and the ability to apply for jobs without a public profile. These features can be particularly beneficial for professionals looking to expand their job opportunities or grow their businesses. By offering a free version of their service, LinkedIn is able to attract a large number of potential customers. Once they’ve created a free profile and had the opportunity to see the value of the platform, many users choose to upgrade to a paid version to access these additional features and gain a competitive edge in their industry. This generates revenue for the company while providing value to the users.

It’s also worth mentioning that LinkedIn has a very clear call to action on the free version of their platform, guiding the user to upgrade to the paid version by highlighting the benefits, this is an effective strategy to increase the number of users that upgrade.

Overall, LinkedIn’s use of the reverse freemium model is a great example of how businesses can use this pricing strategy to drive revenue and attract customers while providing valuable services to users.

Conclusion

The reverse freemium business model is a unique and effective pricing strategy that has been used by some of the biggest companies in the world to drive revenue and attract customers. By offering a premium product for free and allowing customers to downgrade to a paid version with reduced features, companies can generate revenue through downgrades and add-ons. Spotify and LinkedIn are great examples of companies that use the reverse freemium model.

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