What should be offered for free and what for premium in a freemium service? a two-stage approach of Kano & path analysis to the design of freemium services

ABSTRACT

The freemium model, a business model that provides basic functions for free and makes a profit by providing advanced functions at a premium, has been widely adopted in various industries. To acquire enough customers and generate revenues from the freemium model, the proper allocation of free and premium functions is essential, but little research has been done in this direction. This study proposes a two-stage approach that combines the Kano model and the technology acceptance model (TAM) as a conceptual design method of freemium services. First, Kano analysis is performed to divide the functions of services into three types, must-be, one-dimensional, and attractive functions. The must-be functions are regarded as free functions, and low and high-level one-dimensional functions are classified as free and premium functions, respectively. Then, we perform path analysis based on TAM to identify additional premium functions that affect willingness to pay. We allocate free and premium functions of personal cloud service using the proposed approach and compare the results with the current functions of Dropbox, One Drive, and Google Drive. The proposed two-stage approach is expected to be practically used for designing service concepts based on the freemium business model in various industries.

KEYWORDS:

• Freemium business model
• freemium service
• service concept design
• Kano model
• technology acceptance model (TAM)
• path analysis
• personal cloud service

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by National Research Foundation of Korea: [grant number NRF-2019R1F1A1057071,NRF-2021R1F1A1045787].

Notes on contributors

Saerom Lee

Saerom Lee is a PhD Candidate at the Department of Data Science. She received the degree of BS from Induk University and MS from Seoul National University of Science and Technology. Her research interests are digital innovation strategy and digital business models.

Chulhyun Kim

Chulhyun Kim is an associate professor of Department of Industrial and Management Engineering, Induk University. He received the degrees of BS, MS and PhD from Seoul National University. He worked at IBM Korea and Korea Institute of R&D Human Resource Development. His research interest includes service science, technology management, and patent analysis.

Hakyeon Lee

Hakyeon Lee is a professor of Department of Industrial Engineering, Seoul National University of Science and Technology. He received the degrees of BS and PhD from Seoul National University. His research interests are digital innovation strategy, and data business. He has authored more than 40 published papers in leading journals of innovation management and information science.