The Argument for a Freemium Model

The dream of the internet died when people realized that, while information might want to be free, it’s also expensive to create. And yet, for a long time, many publishers tried to keep their sites open, not embracing or realizing that charging for content might actually be an option.

There were exceptions, of course. For example, the FT introduced its first digital paywall in 2002. But it wasn’t until The New York Times released its innovation report in 2014 that the conversation shifted, and people realized that, perhaps, information could be directly monetized. Since then, there has been debate about the different paywall strategies to maximize revenue.

The hard wall is the strictest, which says that all content should be locked. You want it; you’ve got to pay for it. Period. End of story. The loosest is the metered paywall, which gives the publisher control over how many pages can be seen before the wall fires. And finally, there is the freemium model, which segregates the content into two buckets: paid and unpaid.

I was a hardcore fan of the metered paywall for the longest time. And in many respects, I still think it makes a lot of sense. As the operator, you had the flexibility to decide how many stories a reader should get before they have to pay. You could harden the wall based on traffic sources, so if you found that people from Twitter converted better than Facebook, for example, you could manipulate the rules.

Compare that to the hard paywall, which gives you no choice as an operator. On the one hand, it’s elegant and simple. You create content, and people sign up if they want it. On the other, you’re limited by growth. The Information does some of the best reporting on the planet, but there’s only one way to know: pay.

But there is an argument to be made that both models have their place, which is why I have been warming to the freemium model. You have two buckets of content, one which you can use for growth and monetize with advertising. The other bucket is directly monetizable through subscriptions.

Ironically, this is kind of the model I’ve deployed with A Media Operator. I write my thoughts and analysis on the news on Tuesdays, which is accessible to everyone. And on Fridays, for paying members, I write a deeper essay on a specific topic. So they’re two different categories of content. That’s the freemium model in a nutshell.

The benefit here is that I can continue growing my email list, which remains the single biggest driver of paid subscriptions. When I first launched A Media Operator in 2019, it was completely free. Growth was great. I hit my first 1,000 newsletter subscribers in four months. But then I turned on the paywall, and things started to slow down.

The reason was simple. Before the paid product, I had two pieces a week that could potentially get people talking and an audience coming to my site. Once I introduced the subscription, that growth was cut in half. There were fewer opportunities to get people to my content and, therefore, fewer chances for them to find it interesting and sign up.

These are the obvious tradeoffs of any paid subscription model.

But I think the freemium model also breaks us free from thinking about the content as the primary unit of monetization. In many ways, the freemium model opens us up to more opportunities to monetize our business while also growing our audience. Here are a few different examples.

I’ll start with A Media Operator. I’ve been thinking about ways to improve the subscription product to increase conversion and reduce churn. One idea is to make the podcast more useful to readers. Because it’s sponsored—and because I believe podcasts should be free—the episodes would still be distributed widely. However, many people prefer to read than listen to the audio. Since that part isn’t sponsored, I could create an archive of transcripts.

I believe this is valuable because most people might remember that someone on the show said something, but they don’t actually remember when it was said. That makes it hard for research purposes if they have to listen to the entire episode. And thus, putting the transcriptions behind the paywall would be a value-add to subscribers. So, I’ve started that process, and it should be done over the next few weeks. (Thank you, John, for the idea.)

Another idea that I am a fan of for b2b media companies is the introduction of databases. When I spoke with Alexis Grant from They Got Acquired, she talked about her database:

Then, on the back end, we are building a database of all these acquisitions. We have more than a thousand that we know fit our criteria and our criteria is pretty simple. The business has to be primarily online, so we wouldn’t cover a brick and mortar.

It has stuff sold since 2017, and the deal price has to be between $100,000 and $50 million, which is a really big a huge space to play in. Some people would say I think the six and seven-figure sales have more in common than some of the eight-figure ones, but I think there’s something we can learn from all of those. Our goal in terms of monetizing this is to use that database and sell the insights that we get our hands on through the database, which is new for me because I’ve done a couple of different models for monetization.

For Grant, her website and newsletter are all about getting as many people to the site to sign up for the newsletter. And then, once she has that audience, she’ll monetize with this database of reports. That’s an example of having your cake and eating it too. You get growth, but you also get to monetize your audience directly.

Another example is Blockworks. It has a team of reporters covering the constantly moving crypto space. Could it charge for that? Sure. But it also has other business models that it wants that audience for: events, webinars, podcasts, etc. So, what can it do?

It recently announced its research product, which looks at different assets in crypto and provides fundamental information for investors. This is absolutely a power user product, and it charges readers $2,500 per year. But now it, too, can have its cake and eat it too. It builds a big audience and then pushes those people down the funnel to this big-ticket subscription.

Let’s try something local. One idea is to create a digital coupon book. When I was a kid, one of the many fundraisers I had to push was selling these coupon books. In a nutshell, local businesses would pack these books full of coupons, and then consumers would buy them. If you spent $20 on the book, you might get $100 or $200 in savings. The consumer won, and the businesses won.

What about doing that in 2022? Create a monthly or annual subscription where users get new coupons on a rolling basis. You can maximize your site’s traffic because you’re not locking down your content, but also continue monetizing your most loyal users.

In all these examples, the primary content—day-to-day content, if you will—is not being directly monetized with subscriptions. Instead, publishers benefit from the growth in an audience by keeping more content open. However, they are also benefiting from other types of reader revenue.

That’s the actual argument for a freemium model. You opt to use your free content as a way to get people hooked on what you do and then get them to pay when they want to move deeper into your business. Of course, it requires more upfront product development, but I think there’s something to be said for this approach. In a world where we are trying to diversify—ads and subscriptions—not cutting off our ability to grow our audience is pivotal. This is one way to do that.

Thanks for reading today’s newsletter. Please hit reply or join the AMO Slack channel if you have thoughts. Have a great weekend!