Freemium Economics Leveraging Analytics and User Segmentation to Drive Revenue This page intentionally left blank For my mother This page intentionally left blank 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 you’re 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 Seufert’s Freemium Economics covers every aspect of freemium software design and development, from the core concepts of “freemium economics” to mar- keting. This book is a must read for anyone developing freemium products.” —Michail Katkoff (“The Deconstructor of Fun”), Scopely vii This page intentionally left blank Contents Acknowledgments ...................................................................................................xiii Author Biography ....................................................................................................xv Introduction ............................................................................................................xvii CHAPTER 1 The Freemium Business Model .................................1 Commerce at a price point of $0 ....................................................1 Components of the freemium business model ...............................2 Scale ...........................................................................................3 Insight ........................................................................................5 Monetization ..............................................................................7 Optimization ..............................................................................9 Freemium economics ...................................................................10 Price elasticity of demand ........................................................11 Price discrimination .................................................................14 Pareto efficiency .......................................................................17 Freemium product case studies ....................................................20 Skype ........................................................................................20 Spotify ......................................................................................22 Candy Crush Saga ....................................................................25 CHAPTER 2 Analytics and Freemium Products ..........................29 Insight as the foundation of freemium product development .......29 Analytics .......................................................................................29 What is analytics? ....................................................................30 What is big data? ......................................................................33 Designing an analytics platform for freemium product development .................................................................................34 Storing data for a freemium product ........................................37 Reporting data for a freemium product ....................................39 Data-driven design ........................................................................41 The minimum viable product ...................................................43 Data-driven design versus data-prejudiced design ...................44 CHAPTER 3 Quantitative Methods for Product Management .......47 Data analysis.................................................................................47 Descriptive statistics .....................................................................47 Exploratory data analysis .........................................................51 ix