Monetizing Freemium Communities: Does Paying for Premium Increase Social Engagement?

31 Pages Posted: 15 Dec 2016  

Ravi Bapna

University of Minnesota

Jui Ramaprasad

McGill University - Desautels Faculty of Management

Akhmed Umyarov

University of Minnesota

Date Written: December 15, 2016

Abstract

Making sustainable profits from a baseline zero price and motivating free consumers to convert to premium subscribers is a continuing challenge for all freemium communities. Prior research has causally established that social engagement (Oestreicher-Singer and Zalmanson 2013) and peer influence (Bapna and Umyarov 2015) are two important drivers of users converting to premium subscribers in such communities. In this paper, we flip the perspective of prior research and ask whether the decision to pay for premium subscription causes users to become more socially engaged. In the context of the Last.fm music listening freemium social community, we establish, using a novel 41 month long panel dataset, a look-ahead propensity score matching (LA-PSM) procedure coupled with a difference-in-difference estimator of the treatment effect, that payment for premium leads to more social engagement. Specifically, we find that paying for premium leads to an increase in both content-related and community-related social engagement. Free users who convert to premium listen to 287.2% more songs, create 1.92% more playlists, exhibit a 2.01% increase in the number of forum posts made, and gain 15.77% more friends. Thus, premium subscribers create value not only for themselves by consuming more content, but also for the community and site by organizing more content and adding more friends, who are subsequently engaged by the social diffusion emerging from the focal user’s activities.

Keywords: Freemium, social Engagement, Monetization, Premium Subscription

Suggested Citation

Bapna, Ravi and Ramaprasad, Jui and Umyarov, Akhmed, Monetizing Freemium Communities: Does Paying for Premium Increase Social Engagement? (December 15, 2016). Available at SSRN: https://ssrn.com/abstract=2885681 or http://dx.doi.org/10.2139/ssrn.2885681

Ravi Bapna

University of Minnesota ( email )

321 19th Ave S
Information and Decision Sciences
Minneapolis, MN 55455
United States

Jui Ramaprasad

McGill University - Desautels Faculty of Management

1001 Sherbrooke St. West
Montreal, Quebec H4A 1G5
Canada

Akhmed Umyarov (Contact Author)

University of Minnesota ( email )

321 19th Ave S
Minneapolis, MN 55455
United States

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