Freemium: A tiered business model that combines a free version with a paid premium version.
"Freemium" was coined (or perhaps just gained currency) about three years ago, when venture-capitalist blogger Fred Wilson described the concept:
Wilson's examples included Skype and Flickr. He then asked readers to suggest a name for this model; James Governor was the first to come up with "freemium." Some of the other nominations included Free2Fee, upselling (an old term applied in a new context), and loss leader (ditto). A couple of readers suggested variations on "the drug-dealer model": the first one's free.
It could also be called the Gillette model: free razors, expensive blades.
Since Wilson wrote his post, we've seen the rise of another business model: the 100 percent free, no-visible-means-of-support model. Here's what Chris Anderson has to say about it:
Take Twitter, the fantastically popular (and free, of course) 140-character messaging service where people update the world on what they're doing, one haiku-like snippet at a time. After taking over the world, or at least the geeky side of it, it now finds itself having to actually make enough money to cover its bandwidth bills. Last year it hired a revenue guru to try to find a business model and has announced that it intends to reveal its strategy early this year. Speculation as to what that will be ranges from charging companies to have their "tweets" recommended to consumers (which is a bit like "friending" the Burger King on Facebook) to certifying identity to avoid impersonation. The revenue officer has his work cut out for him.
On the other hand, there are hundreds of thousands of Twitter addicts (Fritinancy not excepted). Some of us would, no doubt, sell a kidney in order to keep tweeting.