Unfortunately sometimes you do things first, but you learn later. In this case, I wrote a comment on TechCrunch’s MG Siegler’s Free to Use. Pay to Play, but now I am realizing that I could do the same in my blog, and employ a trackback. This is just great, because now I have to write new stuff in order for MG to accept my trackback. Well, there is always a first time. I hope you still accept it MG. If you are a beginning blogger like me, and don’t know what a trackback URL is, here’s a great article (there are many out there).

Freemium means that there is a set of features in a product that are free, and when you want to upgrade, or add some premium features, then you have to pay. The easiest example is Gmail. If you go over your ~7Gb of storage you have to pay a fixed amount per year for additional storage.

And now to the subject matter. Mr. Siegler writes accurately about the advantages of the freemium model as was first brought up by Fred Wilson on his blog, I absolutely agree with the article and the advantages of the freemium model. However, this still doesn’t solve the question of the new startups mentioned in the beginning of the article who can’t get positive cash flows. They still have to invest sometimes a lot of money in order to achieve that service/product that will build a huge user base. Yes, a subscription model could always enhance an ad-based model, but how do you get to the point that Siegler is describing, citing Pandora as an example, of being a service with an already huge user base, that can start employing the freemium model?

Moreover, as Yuval Ararat mentions in his blog, he quit last.fm when they started demanding subscription money from him. Same thing happened to me with BSPlayer, when they started making their software shareware. Evidently this model does not always work, and even when you have a big user base it doesn’t necessarily mean that users will stick around if you change the rules. There is a fine line here, and you have to be careful with your demands. If you don’t have any real competitive advantage and there are low switching costs, then virtually nothing prevents your huge user base from becoming very, very tiny.