Optimizing the composition of paid content in a freemium model

Schmitt, Daniela ; Stahl, Florian ; Iyengar, Raghuram

Document Type: Conference presentation
Year of publication: 2018
Conference title: 2018 INFORMS 40th Annual ISMS Marketing Science Conference
Location of the conference venue: Philadelphia, PA
Date of the conference: 13.-16.06.2018
Publication language: English
Institution: Business School > Quantitatives Marketing und Konsumentenverhalten (Stahl 2013-)
Subject: 330 Economics
Keywords (English): Digital Product Management , Freemium Business Model , Customer Subscription Behavior
Abstract: Many companies try to sell subscriptions for their digital products using a freemium revenue model. Such a business model typically implies offering a low-end version of the product for free and a high-end version for a fee. For instance, a news publisher may offer some content for free to all customers while placing other content behind a paywall. Little is known about how the characteristics of the content determine whether it would be free or paid. Using individual-level consumption data from an online news publisher that employs a freemium model, we quantify the impact of the quality and quantity of paid content on the demand for subscriptions. Using the findings from our empirical analysis, we develop a framework for setting a freemium strategy (i.e., the ratio of free versus paid content) optimal for revenue maximization.

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