Freemium Business Models as the Foundation for Growing an E-business Venture: A Multiple Case Study of Industry Leaders

Abstract

In e-business freemium business models have become legitimate. However, current research provides little insight on how the free and premium offering should be employed to lead to growth and success in the long run. The presented research aims to fill this gap by investigating how the property ‘free’ was employed in young entrepreneurial ventures’ business models in the initial life-cycle stages – opportunity recognition, market entry, and market exploitation. We find that various forms of freemium business models are employed through the initial life-cycle stages of a new venture for reasons of trial-and-error, learning, exploration, legitimization and resource acquisition. A freemium business model can also serve as a nascent business model, though without a sustainable monetization component, for finding a sustainable business model through a series of dynamic adjustments. With our findings we contribute to the business model literature in three ways: First, our empirical findings show the many-sidedness of the component ‘free’ in freemium business models. Free users are of importance for network building, exploration and exploitation and growth over time. Moreover, free users enable directly and indirectly further resource acquisition. Second, while previous literature has taken a static perspective, we contribute by illustrating the dynamic process of strategic business model design for growth. Finally, we introduce the concept of the nascent business model which is new to the literature.