Free Versus For-a-Fee:  The Impact of a Paywall on the Pattern and Effectiveness of Word-of-Mouth via Social Media

Oh, Hyelim; Animesh, Animesh; Pinsonneault, Alain

doi:10.25300/misq/2016/40.1.02

Cited by 88 publications

(38 citation statements)

References 37 publications

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“…First, Oh, Animesh and Pinsonneault (2015) suggest that the existence of a paywall lowers both website traffic and virality. Our findings indicate, however, that paywalls that can be unlocked via referrals can be used as a mechanism to increase viral activity.…”

Section: Discussionmentioning

confidence: 99%

“…After clearing 40 levels, players encounter a 'gate' that needs to be unlocked to access additional levels. This monetization mechanism is equivalent to paywalls which are much used in monetization of information goods (Chiou and Tucker 2013;Lambrecht and Misra 2016;Oh, Animesh and Pinsonneault 2015). After the initial gate, players encounter additional gates every 20 levels.…”

Section: Methodsmentioning

confidence: 99%

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Freemium Pricing: Evidence from a Large-scale Field Experiment

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AcknowledgementsWe wish to thank Michaela Draganska for helpful comments. We are further grateful for helpful discussions with: Art Owen, Stephan Seiler, Udo Wagner, Eric Seufert, participants of the Conference on Digital Experimentation at MIT, participants of the Media Economics Workshop at ETH Zuerich and seminar participants at the Institute of Marketing of Humboldt University Berlin and at the Institute for Strategy, Technology and Organization of Ludwig-Maximilians-University Munich. Finally, we wish to extend our heartfelt gratitude to Wooga for data access and highly fruitful cooperation; in particular, we wish to thank Maija Marincenko, Timothy Frohner, Cedrik Neumann and Anton Troynikov.Electronic copy available at: https://ssrn.com/abstract=2888471 2 AbstractFirms commonly run field experiments to improve their freemium pricing schemes. However, they often lack a framework for analysis that goes beyond directly measurable outcomes and focuses on longer term profit. We aim to fill this gap by structuring existing knowledge on freemium pricing into a stylized framework. We apply the proposed framework in the analysis of a field experiment that contrasts three variations of a freemium pricing scheme and comprises about 300,000 users of a software application.Our findings indicate that a reduction of free product features increases conversion as well as viral activity, but reduces usage -which is in line with the framework's predictions.Additional back-of-the-envelope profit estimations suggest that managers were overly optimistic about positive externalities from usage and viral activity in their choice of pricing scheme, leading them to give too much of their product away for free. Our framework and its exemplary application can be a remedy.Keywords: Freemium, pricing, digitization, experimentation 3 Digital products are characterized by high cost to produce the first copy and very low marginal cost of reproduction (Arrow 1962). This particular cost structure has given rise to freemium pricing -i.e., a hybrid pricing scheme that combines free use of a basic version of the product in perpetuity, with premium upgrades that require the payment of a fee (Anderson 2009;Pauwels and Weiss 2008). Early indications that such pricing strategies are promising were presented by Scott (1976) and more recently by Bawa and Shoemaker (2004).Freemium pricing is widely adopted by technology companies for their software applications as it allows them to acquire a large number of users at low cost (Lee, Kumar and Gupta 2015). Despite the widespread use of freemium pricing, many firms find it Firms therefore regularly run field experiments ('A/B tests') to improve their pricing scheme (Levitt et al. 2016;Seufert 2014;Wedel and Kannan 2016). In evaluating these experiments -due to the aforementioned complexities -managers are rarely guided by an assessment of (multi-period) profit, but mostly base their evaluation on performance indicators that are directly measurable (Seufert 2014). The scientific literature on 4 freemium p...

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Section: Discussionmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Freemium Pricing: Evidence from a Large-scale Field Experiment

et al. 2017

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“…The framework, starting from a simple profit function, systematizes parameters that are at the firm's discretion and key value drivers of freemium profit as put forward by scientific and managerial literature. Figure 1 summarizes the framework and first-order effects between key variables, as evidenced in a body of literature (Aral and Walker 2011;Aral, Muchnik and Sundararajan 2009;Bapna and Umyarov 2015;Campbell 2013;Chiou and Tucker 2013;Lambrecht and Misra 2016;Lee, Kumar and Gupta 2015;Liu, Au and Choi 2012;Moe and Fader 2004;Oh, Animesh and Pinsonneault 2015;Pauwels and Weiss 2008;Trusov, Bucklin and Pauwels 2009;Van den Bulte and Joshi 2007;Villanueva, Yoo and Hanssens 2008). The framework will not only serve to derive expectations for experimental outcomes in the next section, but will also form the basis of our profit estimations in the discussion.…”

Section: A Stylized Framework Of Freemium Pricingmentioning

confidence: 99%

“…Firms must decide not only what volume of features to give away for free, but also what prices to set for premium upgrades. Further, viral sharing and word-of-mouth are essential to the success of freemium pricing, by fostering adoption with minimal marketing expenditure (Lee, Kumar and Gupta 2015;Oh, Animesh and Pinsonneault 2015;Pauwels and Weiss 2008). The firm must therefore also make decisions about the incentives it sets for users to engage in viral activity (Aral and Walker 2011;Lee, Kumar and Gupta 2015;Trusov, Bucklin and Pauwels 2009).…”

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Freemium Pricing: Evidence from a Large-scale Field Experiment

et al. 2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. licence. www.econstor.eu ISSN 1866-3494 Copyright 2016 by ESMT European School of Management and Technology GmbH, Berlin, Germany, www.esmt.org. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicatedAll rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means -electronic, mechanical, photocopying, recording, or otherwise -without the permission of ESMT.Find more ESMT working papers at ESMT faculty publications, SSRN, RePEc, and EconStor. However, they often lack a framework for analysis that goes beyond directly measurable outcomes and focuses on longer term profit. We aim to fill this gap by structuring existing knowledge on freemium pricing into a stylized framework. We apply the proposed framework in the analysis of a field experiment that contrasts three variations of a freemium pricing scheme and comprises about 300,000 users of a software application.Our findings indicate that a reduction of free product features increases conversion as well as viral activity, but reduces usage -which is in line with the framework's predictions.Additional back-of-the-envelope profit estimations suggest that managers were overly optimistic about positive externalities from usage and viral activity in their choice of pricing scheme, leading them to give too much of their product away for free. Our framework and its exemplary application can be a remedy.Keywords: Freemium, pricing, digitization, experimentation 3 Digital products are characterized by high cost to produce the first copy and very low marginal cost of reproduction (Arrow 1962). This particular cost structure has given rise to freemium pricing -i.e., a hybrid pricing scheme that combines free use of a basic version of the product in perpetuity, with premium upgrades that require the payment of a Against this backdrop, we structure relevant literature into a stylized framework of freemium pricing, and use the framework to analyze a large-scale field experiment. The randomize...

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“…Online review is a new form of WOM communicated via Internet, which has beenextended to include far-ranging social communications mediated by information technology [2]. As online reviews contain rich information about attributes and qualities of products experienced by consumers themselves, it is able to lower the uncertainty of product information and risk of purchasing [3].…”

Section: Introductionmentioning

confidence: 99%