The freemium advertising problem

Written by: Alex Patton
Ozean Media

The term ‘freemium’ was coined to refer to any software or service offered for free use, but offers some some enhanced functionality if the user or organization pays a monthly or annual fee. Notable examples include DropBox, who offers 2GB 5GB of online storage for free — up to 1TB for paying users — or Pandora, who offers free Internet radio but allows paying customers track skips and an ad-free experience.

While ten years ago paying for a service such as Internet radio would be regarded as a frivolous expense, there are a growing number of paying subscribers who would contend such an expense is just as vital as keeping the electric bill paid.  According to an internal survey, 67% of Pandora listeners said the company’s Internet radio service made a positive impact on their life.  When narrowed to just the musical experience, some 84% said Pandora connects them with the music they love.  With stats like that, who wouldn’t want to listen to, or advertise on, Pandora?

A recent survey showed 67% of listeners said Pandora had positive impact on their life.

But this presents a real problem for advertisers.

Let’s take Pandora; with over 80 million registered users, they’re arguably the widest reaching internet radio platform — a lucrative advertising medium to spend our media budgets on. Here I am, Mr. Media Buyer, trying to target the Pandora’s most loyal listeners, particularly ones who have disposable incomes what most would consider a

Add to that the psychological effect on a user who pays for a service he or she was already getting for free:  they use it a heck of a lot more.  After all, if I’m catching grief from my penny-pinching wife on spending six bucks a month on some internet radio service she gets on her iPhone for free, I had better spend every waking minute of the day using it.  This means the users with the highest frequency to the site are excluded from my advertising reach.

For a company like Pandora, it equates to the users with the highest listening hours per month — with the greatest chance of seeing my client’s ad — are totally off limits to my campaign.  This makes it a harder sell to clients, knowing that a sweet piece of a pie will never hear their clever ad.

Even with that considered, advertising on freemium services is far from a bad option.  This stands especially true if you’re targeting the coveted 18-25 demographic, who’ve all seemed to embrace conventional-media-replacing services like Pandora and Hulu.

It’s a limitation, not a deal breaker, but I sure hope these service providers fully explore every option before excluding the crème de la crème to us media buyers.

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