The Advertising Effect of Free - Do Free Basic Versions Promote Premium Versions within the Freemium Business Model of Music Services?

Thomas M. Wagner, Alexander Benlian and Thomas Hess

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: Freemium seems a promising solution for content providers to earn money in times of the free mentality of Web 2.0 users. Freemium services can be used both for free or with a paid subscription to obtain premium content. Nevertheless, freemium's success is limited. Especially Music as a Service (MaaS) providers, that provide music via streaming over the internet as a service, still make no profits, because earnings from advertisements and premium users are not sufficient to finance the free basic version of music listening. However, this free basic version is necessary to convert non-paying users into paying ones. This study tests whether the basic, free version of a freemium service is recognized as advertisement for the premium version and could therefore lead to conversion. Using a structural equation model based on the Dual Mediation Hypothesis, we developed a survey with 71 participants and found that there is no advertising effect.

Date: 2013-01-10
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Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:66723

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