THE IMPORTANCE OF DESIGNING YOUR FREEMIUM ITEMS

 Freemium is a terms most widely use in game or application developers, it’s a combination of two words which is free and Premium.

When a product is called Freemium it means user can use it for free and then users can buy a premium items or services.

70% of the apps or games in the market is freemium, and the freemium is getting famous, lots of developers look at freemium as the solid business model to generate revenue. Developers are putting their trust and revenue on a small 1- 2% of user that actually buy something from the freemium product.

So this is how the economics works

1.       You put your product in the market as Freemium, meaning it’s Free for any user to download your product, since it’s free you would expect to reach the holy grail number of downloaded application/games which is 1.000,000 download

2.       Since now you have 1.000.000 apps/game in the market, the probability from 1.000.000 million user will buy anything from your apps/games is a small 1-2%. So let’s say the number is 1% meaning there is only 10.000 people buy something from you

3.       From this 10.000 people the average nominal number of their purchase is around 1-2 USD. So from your apps you receive 10.000USD in revenue

The question is : this 10.000 USD is a 1 time hit or is it something sustainable ?, to answer this questions I will ask another question : “what kind of premium items do you provide ? is it a 1 time buy or is it something user has to buy repeatedly ?”

If you tell a user, you have to buy this premium product over and over again, the user will leave you out cold, so the strategy is to make them craving to buy your premium product over and over again, and to know that we need to know what kind of items are sold as Premium items

There are 2 types of premium items:

1.       Durable items : this is something that user buys and the items stays forever

2.       Consumable items  : this is something that user buys and it depleted when used

Seeing the two points I mention above, I can see your having your AHA moment. So when your user buy a building and it stays forever, most likely your user will buy it 1 time only, but if you sells let’s say a energy food to perform some super strength action that depleted after it’s consume, this is consumable items and your user most likely would want to buy another energy food.

According to flurry http://www.flurry.com/ the most item purchased by user are :

In order of their rankings :

Consumable goods : 68%

Durable Goods : 30%

Personalization : 2%

So if you think by selling clothes for user’s avatar is a great source for revenue, think again avatar’s related items are only purchased 2% , so if you want to generate revenue focus on selling consumable items, like energy, food, etc ,

The main point is, designed your virtual item as hard as you design your core engine, it’s where your revenue generates.

Have fun designing your virtual items.

My Mistaken Business Mindset

In every business to keep yourself up ahead of the competition or at least to maintain your position in the market is have something that is own by you and only by yourself, what I mean is you have to have your own technology or you have your own secret recipe or you have your own skill that nobody have, the bottom line is to have something that is not dependent to other parties and it’s your own.

Actually there is nothing wrong with this thinking, in my mindset for the industry I worked in, I focus my self in developing our own technology platform, but it is until I start to reflect on automotive industry.

Let’s say Toyota, the automotive maker , in a Toyota car, you can say Toyota build the car, but does Toyota build iit 100%, who build the tires ? it’s not Toyota, maybe it’s Bridgestone, who built the air conditioner ? usually it’s Denso, who built the sparkplug ? NGK, who built the car seats, the windshields, the steering wheels, the dashboards ? the lamps ? it’s not Toyota, maybe Toyota design the car and manufacture the chassis and the engine block and that is it. So maybe in a car, Toyota only builts 20% and the rest 80% is built by other parties, so in a way, Toyota is mostly an assembling company.

The same thing with Apple, Apple made their product in China, so does Sonny, Samsung also does the same thing except Samsung produce the LCD and also the chipset.

So my point is you can actually built a product and maintain your brand even though you only contribute directly as much as 20%, these days I don’t think you can build a product without collaboration.

Seeing this I can imagine Toyota shared NGK their engine requirement so NGK can also produce the right sparkplug that support Toyota engine performance, so does with Denso, I’m sure Toyota shared the cabin volume size and the temperature requirement and how the AC flow should be, so it’s all about collaboration and sharing information and that includes sensitive information. Collaboration is the key and secrecy - Business Intellectual property- is a part we can not ignore.

So what lessons that I’ve learned : now I’m thinking collaboration at almost every steps of my business and of course we need to find our core competency, something that differentiate us in the market and able us to face the competition.

Collaboration enable us to :

1.       Shorten the product development time

2.       Cut development cost significantly

3.       Enable us to respond to market faster

4.       Focus our strength on what we do best

5.       Use other products/companies strength to enrich our own products

6.       Grows the industry

Summary

Collaboration and Core competency

-It’s ok to create a product by assembling various products, even though 80% of its component comes from other companies, it’s how you design, package, distribute, and maintain the quality that wins the market  -