A friend of mine, who also happens to be a VC, once told me about what he calls the 'Land and Expand' strategy.
In Land and Expand, you so totally reduce the barriers to customers adopting your product, that it's relatively easy to get them to at least try your product (or service).
Then, once you have secured this 'landing,' there are numerous ways that you can then expand your position to deeper engagement, more mindshare and, hopefully, a higher margin revenue path.
With Land and Expand as a strategic backdrop, I got a 'boo-yah' grin yesterday when Apple announced (via a developer mass-mail) that iPhone app developers can now use In-App Purchase within their FREE apps to sell content, subscriptions, and digital services.
What's the big deal? Simply put, freemium is now the perfect gateway to Land and Expand on the iPhone, since developers can release one app that can be segmented by price and functionality, and in a consumer-convenient fashion, toggled from free to fee to premium (or recurring subscription), the click action of which will inure the app with new functionality and/or content (e.g., additional chapters of a story, levels of a game and virtual goods to supercharge a user experience).
Previously, Apple held to the credo that "free apps should remain free," lest customers ever feel the dread of bait and switch.
While intuitive and logical, this binary forking between free and paid forced developers into performing unnatural acts, like releasing (and supporting) separate 'lite' free apps and full-featured paid apps, not exactly the best mechanism for converting free users into paying customers (side note: since the launch of iPhone OS 3.0, paid apps have supported an In-App Purchase mechanism).
For consumers, this meant performing another kind of unnatural act; namely, that you had to purchase and download a 'new' piece of software and then uninstall the lite version when you wanted to upgrade to the paid version of the software. Needless to say, hardly a friction-free experience for what is otherwise an ultra consumer-friendly mobile platform.
To be clear, the new approach is not perfect. For example, Apple's policies still preclude releasing a full functionality, but time-limited, free trial version.
And supporting In-App Purchase is more complex for developers than with ordinary paid apps, inasmuch as it requires them to add payment-tracking code in the app and operate a web service to support the underlying workflow (or piggyback off of the third-party commercial hosting services that have popped up to address this use case).
Moreover, it will force Apple to rework their Top Paid and Top Free listings within App Store (but not Top Grossing) since distinctions between Paid and Free no longer will be pristine.
But the bottom line is that my assumption is that this new model will take hold, which means a couple things.
One, as Marco Arment (of Tumblr and Instapaper fame) notes in his excellent review of the revised In-App Purchasing Policy:
Average prices can go up. People are more willing to pay for (relatively) higher-priced apps if they have free versions. Customers who try the free version and decide to pay for an upgrade no longer need to delete the old app or re-enter their data in the new one. This significantly reduces the friction to upgrade from free versions, which should dramatically increase the proportion of people who do.
Two, this is another sign that Apple gets it, that they are not tone deaf to the reality that in the iPhone Economy, providing developers the tools that they need to build and execute a disciplined plan for engaging and monetizing their target user base is a win for developers, consumers and Apple alike.
Yet another reason that the iPhone Platform remains the gold standard for mobile computing.