Freemium as an Optimal Strategy for Market Dominant Firms
Abstract
We explain why dominant firms give away good-quality products for free when network externalities are present.
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The existing literature has examined freemium design primarily through theoretical models analyzing feature-gating versus usage-limiting strategies in isolation.
“The existing literature has examined this question primarily through theoretical models analyzing featuregating versus usage-limiting strategies in isolation (Niculescu & Wu, 2014;Kato & Dumrongsiri, 2022;Shi et al., 2019)”
From Scaling a SaaS Business: The Role of Freemium Models in Converting Free Users to Paying Customers (2026) · cites this paper as Shi et al., 2019
SaaS companies employing hybrid freemium models that combine feature-gating with usage limits achieve higher free-to-paid conversion rates than those using single-dimension models (feature-only or usage-only limitations).
“SaaS companies employing hybrid freemium models that combine feature-gating with usage limits achieve higher free-to-paid conversion rates than those using single-dimension models (feature-only or usage-only limitations).”
From Scaling a SaaS Business: The Role of Freemium Models in Converting Free Users to Paying Customers (2026) · cites this paper as Shi et al. (2019)
Cites
Mussa, M., & Rosen, S. (1978) · Journal of Economic Theory · doi:10.1016/0022-0531(78)90085-6 · Cited by 3,306 · see citing works
Economics of Free Under Perpetual Licensing: Implications for the Software Industry
Niculescu, M. F., & Wu, D. J. (2014) · Information Systems Research · doi:10.1287/isre.2013.0508 · Cited by 151 · see citing works
Wagner, T. M., Benlian, A., & Hess, T. (2014) · Electronic Markets · doi:10.1007/s12525-014-0168-4 · Cited by 131 · see citing works
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Scaling a SaaS Business: The Role of Freemium Models in Converting Free Users to Paying Customers
Kessler, N., & Gallagher, P. W. (2026) · American Impact Review · doi:10.66308/air.e2026022
- Authors
- Shi, Z. (., Zhang, K., & Srinivasan, K.
- Affiliations
- Carnegie Mellon University (US)
- Corresponding author
- Zhang, Kaifu
- Venue
- Marketing Science
- Published
- 2019-01
- Volume
- 38
- Issue
- 1
- Pages
- 150-169
- ISSN
- 0732-2399 (ISSN-L)
- 1526-548X
- OpenAlex
- W2902157206
- Cited by
- 86
- References
- 3
- Citations by year
- 2026: 13 · 2025: 14 · 2024: 13 · 2023: 11 · 2022: 14 · 2021: 9 · 2020: 8 · 2019: 2 · 2017: 2
- FWCI
- 12.69
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Marketing Science (publishedVersion)
- Rare & Special e-Zone (The Hong Kong University of Science and Technology) (submittedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Strategy and Management › Digital Platforms and Economics
- Social Sciences › Business, Management and Accounting › Marketing › Consumer Market Behavior and Pricing
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
- Keywords
- freemium, market dominance, network effects, dominant firms, free products, product quality, pricing strategy
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