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Eric Benjamin Seufert - Freemium Economics: Leveraging Analytics and User Segmentation to Drive Revenue

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Freemium Economics presents a practical, instructive approach to successfully implementing the freemium model into your software products by building analytics into product design from the earliest stages of development.

Your freemium product generates vast volumes of data, but using that data to maximize conversion, boost retention, and deliver revenue can be challenging if you dont fully understand the impact that small changes can have on revenue. In this book, author Eric Seufert provides clear guidelines for using data and analytics through all stages of development to optimize your implementation of the freemium model. Freemium Economics de-mystifies the freemium model through an exploration of its core, data-oriented tenets, so that you can apply it methodically rather than hoping that conversion and revenue will naturally follow product launch.

By reading Freemium Economics, you will:

  • Learn how to apply data science and big data principles in freemium product design and development to maximize conversion, boost retention, and deliver revenue
  • Gain a broad introduction to the conceptual economic pillars of freemium and a complete understanding of the unique approaches needed to acquire users and convert them from free to paying customers
  • Get practical tips and analytical guidance to successfully implement the freemium model
  • Understand the metrics and infrastructure required to measure the success of a freemium product and improve it post-launch
  • Includes a detailed explanation of the lifetime customer value (LCV) calculation and step-by-step instructions for implementing key performance indicators in a simple, universally-accessible tool like Excel

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Freemium Economics Leveraging Analytics and User Segmentation to Drive Revenue - photo 1
Freemium Economics
Leveraging Analytics and User Segmentation to Drive Revenue

Eric Benjamin Seufert

The Savvy Managers Guide

Table of Contents Copyright Acquiring Editor Andrea Dierna Editorial Project - photo 2

Table of Contents
Copyright

Acquiring Editor: Andrea Dierna

Editorial Project Manager: Kaitlin Herbert

Project Manager: Malathi Samayan

Designer: Matthew Limbert

Morgan Kaufmann is an imprint of Elsevier

225 Wyman Street, Waltham, MA 02451, USA

Copyright 2014 Elsevier Inc. All rights reserved

No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage and retrieval system, without permission in writing from the publisher. Details on how to seek permission, further information about the Publishers permissions policies and our arrangements with organizations such as the Copyright Clearance Center and the Copyright Licensing Agency, can be found at our website: www.elsevier.com/permissions.

This book and the individual contributions contained in it are protected under copyright by the Publisher (other than as may be noted herein).

Notices

Knowledge and best practice in this field are constantly changing. As new research and experience broaden our understanding, changes in research methods or professional practices, may become necessary. Practitioners and researchers must always rely on their own experience and knowledge in evaluating and using any information or methods described here in. In using such information or methods they should be mindful of their own safety and the safety of others, including parties for whom they have a professional responsibility.

To the fullest extent of the law, neither the Publisher nor the authors, contributors, or editors, assume any liability for any injury and/or damage to persons or property as a matter of products liability, negligence or otherwise, or from any use or operation of any methods, products, instructions, or ideas contained in the material herein.

Library of Congress Cataloging-in-Publication Data

Seufert, Eric Benjamin.

Freemium economics : leveraging analytics and user segmentation to drive revenue / Eric Benjamin Seufert.

pages cm

Includes bibliographical references and index.

ISBN 978-0-12-416690-5 (alk. paper)

1. Pricing. 2. Bundling (Marketing) 3. Marketing. 4. Demand (Economic theory) 5. Consumption (Economics) 6. Computer software industryCase studies. I. Title.

HF5416.5.S48 2014

658.816dc23

2013037659

British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library

ISBN: 978-0-12-416690-5

Printed and bound in the United States of America

14 15 16 17 18 11 10 9 8 7 6 5 4 3 2 1

For information on all MK publications, visit our website at www.mkp.com or www.elsevierdirect.com

Dedication For my mother In praise of Freemium Economics Leveraging Analytics - photo 3

Dedication

For my mother

In praise of Freemium Economics: Leveraging Analytics and User Segmentation to Drive Revenue

Eric Seufert provides comprehensive, analytical insight into the what, why, and how of building a successful freemium business. Whether youre building a free-to-play game or freeware SaaS product, Freemium Economics is an excellent resource to increase chances of success.

Ryan Hoover, PlayHaven

Eric Seuferts Freemium Economics covers every aspect of freemium software design and development, from the core concepts of freemium economics to marketing. This book is a must read for anyone developing freemium products.

Michail Katkoff (The Deconstructor of Fun), Scopely

Acknowledgments

This book represents the combined efforts of a number of people.

To the reviewers, Michail Katkoff, Kenton Kivestu, Ryan Hoover, and Stanislav Beremski: without your input, this book would be of far lower quality. Your help is greatly appreciated.

To Thorbjrn Warin and Jon Jordan, who helped me convince a publisher that a book about the freemium model would be not only salient but timely: without your assistance, this book would not exist.

To the books illustrations and diagrams artist, Vladimir ipka: your contributions to Freemium Economics are invaluable. Your speed and good nature in taking revision requests significantly reduced the stress of the writing process.

To my girlfriend, Pivi Ptsepp: your patience with my weeklyand, as the deadline approached, dailywriting sessions allowed the book to receive the attention it deserved.

To my family: your love and encouragement inspired me to pursue a lifelong dream.

And to the publisher, Morgan Kaufmann: without your early support, the long journey out of which this book culminated would likely not have been undertaken.

Thank you, all.

Author Biography

Eric Seufert is a quantitative marketer with a passion for blending real-world problems with large amounts of data, econometric frameworks, and analytical systems. His professional specialty lies in programmatic statistical methods and predictive forecasting for freemium products.

Eric received an undergraduate degree in finance from the University of Texas at Austin and an MA in economics from University College London, where he was an Erasmus Mundus scholar. Eric joined Skype immediately out of graduate school and subsequently held marketing and strategy roles at Digital Chocolate and at Wooga, where he is now the head of marketing.

Originally from Texas, Eric currently lives in Berlin. In his spare time, Eric enjoys traveling, writing, and performing stand-up comedy.

Introduction

Freemium Economics is a survey of the freemium business model from an analytical perspective: the book aims to dissect the model and explain how its component parts contribute to its success in software products. The freemium model has become the dominant means of generating revenue on mobile devices. Freemium Economics was written to provide an instructive and, more importantly, holistic overview of how freemium products generate revenue, keep users engaged, and grow.

This book serves to formalize the commercial and logistical principles that accommodate the successful application of the freemium business model, both in the abstract and within the context of software development. This book is not a product development guide; it does not prescribe a certain set of actions or best practices to take under concrete circumstances when developing specific products. Rather, it establishes a theoretical framework, informed by both economic principles and the practical realities of software development, that can be applied to the process of building freemium software products.

The scope of the material covered in this book is broad because the book is written with no particular audience in mind. Freemium Economics is not dedicated solely to prescribing an approach to analytics or catalyzing virality in product design or outlining user experience best practices; rather, the book is meant to inform an individuals understanding of how the freemium model generates revenue for products priced at $0. While understanding the structure of freemium componentshow an analytics stack tracks data, or how virality can be quantified, for instanceis important, the interaction between those components is much more significant in terms of revenue relevance.

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