Competing on Freemium: Digital Competition with Network Effects

Boudreau, K., Jeppesen, L. B., & Miric, M. (2021). Competing on Freemium: Digital Competition with Network Effects. Strategic Management Journal (Forthcoming).

60 Pages Posted: 13 Jun 2017 Last revised: 2 Dec 2021

See all articles by Kevin Boudreau

Kevin Boudreau

Northeastern University; National Bureau of Economic Research (NBER)

Lars Bo Jeppesen

Copenhagen Business School - Department of Strategy and Innovation

Milan Miric

University of Southern California, Marshall School of Business

Date Written: December 1, 2021

Abstract

“Freemium” product strategies—where a free basic version of a product is offered alongside a full “premium” paid version—are often used by companies to attempt to increase the size of their user base and benefit from network effects. However, there is limited empirical evidence of how this strategy impacts company performance. We investigate empirically how the strengthening of network effects on the Apple App Store influenced the revenues generated by market leaders and followers, contrasting firms that use paid only versus freemium strategies. We find that stronger network effects did not on their own lead to greater revenue for market leaders w.r.t. followers. However, in settings where freemium strategies were used, network effects greatly amplified the advantage of leaders over followers.

Keywords: digital industry, freemium, network effects, market dominance.

Suggested Citation

Boudreau, Kevin and Jeppesen, Lars Bo and Miric, Milan, Competing on Freemium: Digital Competition with Network Effects (December 1, 2021). Boudreau, K., Jeppesen, L. B., & Miric, M. (2021). Competing on Freemium: Digital Competition with Network Effects. Strategic Management Journal (Forthcoming)., Available at SSRN: https://ssrn.com/abstract=2984546 or http://dx.doi.org/10.2139/ssrn.2984546

Kevin Boudreau (Contact Author)

Northeastern University ( email )

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HOME PAGE: http://www.kevinboudreau.com

National Bureau of Economic Research (NBER) ( email )

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Lars Bo Jeppesen

Copenhagen Business School - Department of Strategy and Innovation ( email )

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Frederiksberg C, DK - 2000
Denmark

Milan Miric

University of Southern California, Marshall School of Business ( email )

Marshall School of Business
BRI 401, 3670 Trousdale Parkway
Los Angeles, CA 90089
United States

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