A Comparison of the "Freemium" and Advertising Business Models

Mackenzie et al. would describe business models “…by content industries in order to provide us, as content creators, a better understanding of our role in the supply chain, and to enable us to make informed decisions on how we choose to distribute our content.,” (Mackenzie et al., 2020, para. 4). This essay will be discussing will contrast and compare two business models. The business models that would be explained are the freemium model and the advertising model. It will describe a brief definition of these models, along with how these two business models are the same and how they are different.

Finally, it will investigate which business model best supports the journalistic ideals of journalism in a digital society.

The first business model I will be describing is the freemium model. This model fuses “…both free and premium services…,” (Mackenzie et al., 2020, para. 14). Mackenzie et al. (2020) believes this model is known to be the most popular out of the other business models as well as being the most successful.

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Mackenzie et al. (2020) goes on to explain that when they mean “free”, it portrays the basic plan of the news organization they offer. While Mackenzie et al. (2020) depicts the “premium” means when an individual has purchased a plan to gain more access to exclusive elements of the news organization that they support. The aspect that is great about this model is that once an individual becomes familiar with the content that news company is producing, they would begin to become “…dependent on this service prior to deciding to make a monthly subscription-based purchase.

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,” (Mackenzie et al., 2020, para. 14). Some examples of this type of business model as stated by Mackenzie et al. (2020) Linkedin, Spotify, Medium, and Dropbox.

The second business model I will be explaining is the advertising model. This model utilizes “…specific demographics, cater ads to your search history, your location, age, and interests.,” (Mackenzie et al., 2020, para. 4). The advertising business model can do this because, since most things are online it can reach a vast amount of people and personalize ads based off the aspects listed above by Mackenzie et al. The advertising model also uses less money when producing online ads compared to print ads that costs more money to produce (Mackenzie et al., 2020). Mackenzie et al. (2020), states the older version of advertising has not changed its main strategy to sell products to consumers. However, the newer advertising model now has something two powerful things “…algorithms and data…” (Mackenzie et al., 2020, para. 4). When people go online, they are met with a dozen of ads when browsing the internet, on their favorite app, or listening to something (Mackenzie et al., 2020).

When comparing the advertising model and the freemium model they both collect user data, risk financial lost producing or making content free for their audiences, and they have audiences from online news agencies that are not fully invested in their published content and may take advantage of the fact that their content is free. The first comparison is that both business models collect audience data. In Seeing Native Advertising Production via the Business Model Lens: The Case of Forbes’s Brand Voice Unit explained that some of these news organizations use a service called BrandVoice that provides advice about graphic design, front front-end design, back-end engineering, and data analytics this allows Brand Voice workers to analyze (Feng and Ots, 2018). Then Brand Voice analyzes the news organization audience’s data that was collected from them and sends the news organization the analysis papers that has organic paid traffic, time spent, social engagement, referral sources, audience makeup, and more (Feng and Ots, 2018). News organizations and their sponsors can sign into the account and look at the data on the Brand Voice dashboards (Feng and Ots, 2018). The second comparison is that they risk their finances to make their content free to later convert people to subscribe or pay for the premium plans offered on these online digital news platforms. In An Empirical Study of Factors that Influence the Willingness to Pay for Online News it explains “Thus, even though total digital advertising revenues rose 19 per cent on average in the last full year (Pew Research Center 2011), that did not come anywhere close to making up for the dollars lost as a result of a 9 per cent decline in print advertising., ” (Goyanes, 2014, p.774). This quote portrays that advertising business models will not profit from just ads alone, which is risking their finances for their business model they had implemented. With the freemium business model, it is the same thing as the advertising model. Rietveld (2018) “…the freemium business model will be used less and generate less revenues…,” (p. 173). Both business models are paying for their audience’s free services and with doing so they are risking their finances in the process. The third comparison is that the advertising business model and the freemium business model have audiences from online news agencies that are not fully invested in their published content and may take advantage of the fact that their content is free. This makes both business models unable to sell their subscription plans or premium plans. Voigt and Hinz (2016) “…as a promising solution for content providers to earn money from users who have a ‘for free’ mentality. It allows companies to suppress entry barriers and thus to attract a much larger audience than paid services do.,” (p.109). Xu and Duan (2018) “The revenue of advertising comes from both subscribers and non-subscribers…but it also requires more capital input.,” (p. 10-11). Based off these examples, it is understandable that the audience will feel more attracted to not paying anything for the news information being published on the news they use constantly.

In contrast the advertising business model uses two sources to generate revenue which comprises of “…subscribing and advertising…,” (Xu and Duan, 2018, p.10). While the freemium model uses those two sources in a different away as opposed to the advertising business model.

The business model that identifies more with journalistic ideals are the freemium business model. A freemium business model will produce “virtues of neutrality and fairness, they were not journalists, nor did they conceive themselves as such” (Kperogi, 2013, p. 50). Since the freemium business model produces free content and has an option for people to choose whether they would like to purchase their premium service, it allows them to be a news media that values all the journalistic ideals that journalist hold to high esteem. Making some of the content free will make more audiences to gain access to their content, so they can be able to curate a loyal audience behind their brand. When they get more people to go on their site and view their content, they will most likely get some people who would sign up for their premium service. This will also help pay their workers for the articles they have written.

In conclusion, exploring the advertising business model and freemium business model to see which business model supports the journalistic ideals seen in a digital news media. This essay had gone over the similarities and differences of each business models which were the advertising business model and the freemium business model. It had also spoke about the business models concise definition, to make readers know what these business models are and how they are used. Business models have an array of options when it comes to choosing business models besides the ones spoken about in this document. 

Reference

  1. Feng, S., & Ots, M. (2018). Seeing Native Advertising Production via the Business Model Lens: The Case of Forbes’s Brand Voice Unit. Journal of Interactive Advertising, 18(2), 148 161https://doi.org/10.1080/15252019.2018.1491349
  2. Getting “freemium” business model right: Key to remarkable success or a costly trap? (2017). Strategic Direction (Bradford, England), 33(9), 16-18. https://doi.org/10.1108/SD-06-2017-0090
  3. Goyanes, M. (2014). An Empirical Study of Factors that Influence the Willingness to Pay for Online News. Journalism Practice, 8(6), 742–757. https://doi.org/10.1080/17512786.2014.882056
  4. Kperogi, F. (2013). News with Views: Postobjectivism and Emergent Alternative Journalistic Practices in America’s Corporate News Media. The Review of Communication, 13(1), 48-65. https://doi.org/10.1080/15358593.2012.752521
  5. Mackenzie, S., Alperin, J. P., & Rich, L. (2020). 3. INTERNET BUSINESS MODELS. In The Web, Publishing, and Ourselves. SFU. https://sfupublishing.pressbooks.com/chapter/internet-business-models/
  6. Rietveld, J. (2018). Creating and capturing value from freemium business models: A demand side perspective. Strategic Entrepreneurship Journal, 12(2), 171-193. https://doi.org/10.1002/sej.1279
  7. Voigt, S., & Hinz, O. (2016). Making Digital Freemium Business Models a Success: Predicting Customers’ Lifetime Value via Initial Purchase Information. Business & Information Systems Engineering, 58(2), 107–118. https://doi.org/10.1007/s12599-015-0395-z
  8. Xu, J., & Duan, Y. (2018). Subscription price and advertising space decisions for online content firms with reference effect. Electronic Commerce Research and Applications, 30, 8-24. https://doi.org/10.1016/j.elerap.2018.05.007
  9. Zennyo, Y. (2020). Freemium competition among ad-sponsored platforms. Information Economics and Policy, 50, 100848–. https://doi.org/10.1016/j.infoecopol.2019.100848

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A Comparison of the "Freemium" and Advertising Business Models. (2021, Sep 10). Retrieved from https://studymoose.com/a-comparison-of-the-freemium-and-advertising-business-models-essay

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