Freemium

Freemium is a pricing model that gives a usable product away for free and charges for higher limits or advanced capability. The free tier is an acquisition channel: it removes the decision to buy at the moment of first use, lets the product demonstrate value directly, and turns users into a distribution mechanism. Revenue comes from a small share of that base, so the model only works at scale and with a paywall placed where serious use naturally hits it. Common boundaries are usage volume, collaborator count, storage, and features such as administration or security controls. Dropbox and Spotify made the model familiar, and most AI products now follow it, with ChatGPT, Claude, Notion, and Figma offering free tiers alongside paid plans. AI changes the arithmetic, because each free session costs real inference money rather than the near-zero marginal cost of traditional software, so free limits are tied to compute. The failure mode is a free tier that is too generous: users never reach the paywall, conversion stays low, and infrastructure costs grow with a base that does not pay. Conversion rate and cost per free user are the metrics that decide it.