The freemium model in the software world

How does the freemium model work in the software world? You might think that there are no free things. That's generally true, but with software it is different. Since there is no difference in costs between one user and a million they might as well distribute more copies to more people. The costs stay about the same and besides the advertising costs, no new costs are added per new user. This means the margins on software are high and this allows companies to spend more on advertising and giving away free copies. Freemium basically means that the end user gets something or a service for free with the option to go premium. This is an excellent model to grow and build brand recognition. This is the reason why major Anti-Virus companies offer a free version of their software. While it might be offering some basic security (which is better than nothing), the actual better solution is the premium software that can be bought. The two mean reasons for Anti-Virus companies to do this are user acuisition and brand recognition. Major browsers distibute for another reason. They simply have another business model that makes money from the search pages which is a story that might be covered in another article.

Brand recognition

Some known VPN startup companies that have huge amounts of cash basically have to expand quickly and create a network-effect. One of the best ways for them is this freemium model. They need eyes, attention and trust, which is exactly achieved with the freemium model. It is said that a person buys something from you the second time easier than the first time. That is because of the trust that is built. Same is true for a free software that's provided to the end user. Besides this free-to-paid conversion and possible revenue the companies might even choose to operate at a slight loss just to keep their brand in the heads of the people. This is the exact reason why we still the top Cola brand advertising during soccer games. The whole world knows about them and still it is important to keep the brand remembered.


Our download manager is one of the distribution channels for Anti-Virus companies. We have advertising offers from AV companies within our download manager. This benefits all parties. The end user gets free security. The software publisher gets paid. The AV company gets another possible future customer and brand recognition.
Software companies will calculate the percentage of free users that turn into paid users. After knowing how much an average paid user is worth, they have a possible advertising budget to acquire one user. Another reason to distribute in this paid way is quickly having user interaction data with their application. There is a known saying in sillicon valley: Fail quick. This is just a quick way to get a lot of users. With users come interaction and feedback.