Freemium and subscription models
'Freemium' and subscription-based business models are still proving popular with digital start-ups
1. Social discovery
3. Social commerce
5. Crowdsourcing and categorisation
6. Freemium and subscription models
7. Niche social networks
8. Location-based apps
This isn’t so much one to watch as one to keep watching. The ‘freemium’ model involves offering a basic service for free, then charging for premium features, such as additional storage space. (Think Spotify, Skype or Dropbox.) This model has frequently been employed by digital start-ups in recent years, to help them to attract and monetise users.
However, another key trend that has emerged, and is gaining momentum, involves taking an existing idea and introducing a subscription model.
For example, take US start-up Birchbox. For a monthly subscription of $10, customers receive a parcel each month containing four hand-picked make-up and beauty samples from top brands, letting users discover new products, while giving the company recurring revenue.
Those who wish to purchase a full-sized product can do so quickly and easily, and will earn reward points. The company, which launched in September 2010, announced earnings of $10.5m and over 45,000 subscribers last year, following a funding round led by Accel Partners.
The 2010 Startups Awards winner Naked Wines is another great example of innovation through a subscription model. The company offers a 25% discount to customers (or ‘Angels’) who commit £20 a month into their wine account, along with other perks.
Not only does this put the business in a rock solid position cashflow-wise, it helps them to support their suppliers (all talented independent wine-makers), by paying upfront. The model is working phenomenally well; there are now more than 100,000 Angels, paying £2m a month.