Creating and Capturing Value from Freemium Business Models: A Demand-Side Perspective
Strategic Entrepreneurship Journal, 12(2), pp. 171-193
43 Pages Posted: 25 Feb 2016 Last revised: 9 Jun 2018
Date Written: October 30, 2017
This paper takes a demand-side perspective on business models as a source of performance heterogeneity. It is argued that business models create and capture value when the elements that compose a business model improve how consumers perceive a firm’s products and better enable heterogeneous consumers to act on their willingness-to-pay. Hypotheses are centered on the competition between freemium and premium business models and are tested in the market for digital PC games. Results show that freemium games are played less and generate less revenues than premium games. Results further show that greater variety in games’ menu of paid items is associated with higher revenues. These findings contribute to our understanding of how firms compete through their business models and hold strategic implications for entrepreneurs.
Keywords: Business models, demand-side view, value creation, value capture, freemium, video games
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