It's easy to think of the freemium business model as merely a pricing strategy: by setting a product's price point at $0, a developer ensures that as large an audience as possible is exposed to it by removing the most significant barrier to adoption – disposable income.
But this line of thought is flawed. Disposable income is but one of a number of potential barriers to adoption – other notable examples being disposable time, sufficient interest in the product (product relevance), and network reach (ie. who else does and might possibly use the product).
The freemium business model is not a pricing strategy but a product strategy – and the fact that a product will be released as freemium must inform the entire development process, from concept, to design, to analytics implementation and instrumentation, to release, to maintenance.
The interoperability of pricing and product in freemium adds a new dimension to the legacy consumer technology marketing paradigm: rather than a segmented, autonomous operating group, marketing informs the entire development chain in an organization producing freemium products. Everything undertaken during the development process of a freemium product should be influenced by a marketing perspective.
One of the requirements of a freemium product – that is, one of the characteristics a freemium product must possess in order for it to generate more revenue than the product otherwise would have if released with a price point above $0 – is the potential for massive scale, given an assumption of low conversion rates and the necessity of large volumes of data in conducting adequate and effective user segmentation.
The potential for that scale can only be achieved with an eye toward general appeal, which is accomplished in the product conception phase through market identification. Understanding the needs of, and targeting a product for, a large addressable market is best accomplished during product conception because it is during this period that the greatest number of fundamental product design elements can be adjusted to accommodate the broadest possible appeal.
Market assessment is a marketing function, yet it must take place before any development work has even begun in freemium to achieve maximum potential scale. Waiting to conduct market assessment – that is, waiting to ask oneself, “Who will most enjoy this product?” -- until the product is ready for release identifies a group of people whose needs fit a now-immutable product use case.
Sizing a potential market in the design phase represents the opposite approach: it identifies the product best suited to address the needs of the largest number of people.
In other words, the market for a product, when it has already been developed and is ready for release, exists: market assessment, at that point, is nothing but an exercise in targeting for the purposes of advertising. Assessing a market in the conception phase identifies the needs of an ideally-sized demographic, allowing the product to be oriented towards suiting those needs.
For a viral mechanic or social feature to not feel contrived, it should be central to the product's core functionality. The phrase most commonly associated with artificial-seeming mechanics of this nature is “tacked on”, meaning a mechanic that was added to the product in the late stages of development to provide a means for viral growth to take root.
“Tacked on” features rarely accomplish more than incremental user base growth. True viral growth is the domain not of viral mechanics but of viral products.
Viral growth is a marketing imperative, and it is accomplished during product development. Viral products are designed to facilitate organic user-to-user interaction as an integral component of the product's use case.
Designing a viral product – as opposed to a viral mechanic – requires an understanding of the importance of non-paid user acquisition, the means through which products are propagated through interpersonal networks, and the optimal media of transmission. These domain functions are the purview of marketing, and in freemium, they're essential to the aforementioned potential for massive scale.
For many freemium products (especially on mobile), the only means of surmounting existential user acquisition costs is virality. Such virality is difficult to achieve through superficial mechanics implemented after the product's core functionality has been architected and developed; rather, the marketing perspective should be applied to the development process to create truly viral products.
Performance marketing – usually, through LTV-based user acquisition campaigns – is a not a one-off procedure executed at product launch. Rather, it is an ongoing process supported so long as the product is profitable.
Performance marketing for freemium products is pursued in close collaboration with the product team: as the product is iterated upon and its metrics (hopefully) improve, the marketing team adjusts its models of revenue performance in effectively budgeting for user acquisition.
But this feedback loop isn't one-directional. The marketing team possesses the best vantage point on product performance as it relates to revenue because its barometer for success – LTV – is a synthetic measure comprised of the retention, engagement, and monetization metrics.
By having full visibility into 1) the changes made for a product iteration, 2) the metrics movements resultant from those product changes, and finally, 3) the effects those product changes had on the product's marketability (ie. the product's LTV), the marketing team is well-equipped to make feature backlog prioritization recommendations.
This isn't to say that marketing should dictate product terms; rather, the product team should take a marketing-oriented approach to assessing backlog items and the order in which they are undertaken to support marketing initiatives.
By approaching the development process with a marketer's perspective, the product team assesses the performance of product iterations from a higher altitude: not just the impact of those iterations on granular metrics but on the product's marketability (which, ultimately, determines its user base size and revenue turnover). In freemium, a product's marketability is its heartbeat.
Freemium = marketing
The entire freemium product development pipeline is made more effective at driving top-line revenue growth through marketing. Freemium is marketing; user base scale, user segmentation, data-driven product development and iteration scheduling, and LTV-driven user acquisition all sit within the scope of marketing and are integral for freemium product growth and revenue performance. Marketing and product development in freemium are inextricably, symbiotically linked.