The Company on the ‘freemium’ Business Model

1. What do you think of company’s revenue/business model?

The company operates on the ‘Freemium’ business model where it gives the core product called Achieve Express (a set of 8 modules) free and plans to sell premium products namely Achieve Logic (additional set of 3 modules) to a small set of this user base.

Year # schools planned

1999-2000 3990

2000-2001 3226

2001-2002 2438

2002-2003 2438

2003-2004 2438

The firm assumes that 65% of the schools targeted as mentioned above will use the ‘Free’ version of the product and 20% of these users will buy the complete package, which will result in a FCFE of $18,721,046. However, a sensitivity analysis done on these assumptions reveal the following, as per the table shown below:

Achieve Express Retention Achieve Logic Subscription FCFE

65% 20% $18,721,046

65% 15% -$922,214

50% 20% -$1,402,104

• A reduction in Achieve Logic subscription rate by 5% points results in a FCFE of -$922,214.

• Further, if only 50% of the schools subscribe to the free version of the product with a 20% Achieve Logic subscription will result in a FCFE of -$1,402,104.

These analyses reveal the two most important factors in this business model:

a. Annual Active Users.

b. Conversion rate.

Hence the goal is to have as many active users as possible and convert them to paying customers and only then can satisfying revenue and profitability can be generated. However, as shown above, if the above factors are missed by a narrow margin, the net FCFE over a ten-year period turns negative.

2. Trace