Special promotions have long been a marketer’s route into customers’ pockets.

Buy-one/get-one-free!, first three-months half price!, 20% off for new customers! The list could go on.

From a customer’s perspective, however, many such promotions are a false economy. For example, two-for-ones encourage people to buy things they don’t need, whilst three-months at half price is the carrot-on-the-stick to get folk to enter into contracts without really thinking about the longer-term associated costs. From a business perspective, though, it works; otherwise marketers wouldn’t do it.

And in the digital age, we’ve seen a surge in what’s known as ‘freemium’, a model that offers free access to a basic version of a service, normally supported by advertising or some other means. Additional tiered premium services are normally available, offering enhanced add-ons not available on the free version.

Spotify is the classic example of how freemium can be used to drive a business forward. Launched to the public in 2008, the music-streaming platform grew in popularity because of its free service. Today, there are four Spotify services in total, two of which are paid.

Spotify Open is free for all, but has advertising included and is restricted to a maximum of 20 hours a month. And Spotify Free has advertising too, it has no listening restrictions, but is available by invitation only.

Then there is Spotify Unlimited and Spotify Premium, available for €4.99 and €9.99 per month respectively. Neither version has advertising, but the more expensive option allows you to listen to music offline, offers mobile device compatibility (for smartphones, tablets etc), has better sound quality and also exclusive content.

But Spotify has just announced that Spotify Open, the service most people will be accustomed to using, is introducing listening restrictions from May 1^st, whereby listening allowances are being halved to 10 hours per month. Furthermore, individual tracks will only be able to play five times, before they’re no longer available for selection.

When Homer Simpson was offered a free sample cookie from a Girl Scout, he devoured it. When she asked him to buy a bag of cookies, he complained: “oh, I get it, get me addicted then jack up the price?” Needless to say, Homer forked out the cash.

Whilst Spotify isn’t exactly jacking up the price, it is diminishing the free ad-supported service as a means of getting people to sign up to one of the premium services.

There are a number of flaws with operating the freemium model this way. Firstly, people are likely to get annoyed that they are being pressured into signing up to the paid version. By reducing the service offering on the free version, Spotify is breaking the confidence it has built among its (non-paying) customers, those who were happy to be subjected to advertising for the sake of accessing a wide range of music.

This doesn’t bode well for the future of the freemium model. It really just seems like a souped-up special promotion, much like a gym or broadband provider would offer. The whole premise of freemium is that those who are happy to suffer a reduced service or be subjected to advertising can do so, whilst those who are happy to pay for better quality do so too. But by trying to shoe-horn people into the paid model, it’s likely to backfire.

Then there is the issue of whether marketers should go down the ‘free’ route at all. It clearly does get people in, at least for the short term, but ‘free’ means cheap, down-market and lacking in quality.

There’s a strong argument that says if you insist that people pay at least something for a service, even if it’s not much, then they will value it a lot more in the long run, which is much better for brands that want to be associated with ‘quality’ rather than ‘low-cost’.

So that’s one of the biggest quandaries in the digital age. People want content for free, but it needs to be paid for somewhere along the line. Freemium seemed like a workable model, but we’re beginning to see that the ‘free’ part of freemium will almost always diminish as soon as a company has enough people on board.

It’s over to you…

Can you think of a better funding model than freemium? If so, leave a comment or tweet @blurmarketing. And if you’re looking to launch a new marketing initiative of your own, why not submit a brief, and our Crowd of creatives will get on the case quick-smart!