What social enterprises can learn from the freemium business model

Abstract

PurposeThe purpose of this study is to identify how the value dynamics of the freemium business model (BM) play out in a social enterprise.Design/methodology/approachWe draw on a multiple case study of two social enterprises –one nonprofit (Aravind Eyecare) in Asia and one for-profit in Latin America (Biodent)– to analyze the implications of applying the value architecture of a freemium BM to social enterprises.FindingsThe freemium BM departs from standard practice when applied in social enterprises. Meaningful differences include the feasibility/desirability of converting free users to paying ones, the presence of significant variable costs –which requires balancing the ratio of free and paying customers– and the use of nontraditional pricing schemes to enhance value capture. The social freemium BM can increase scalability, value creation and value capture. Under this model, “beneficiaries” can be more than passive recipients of value and contribute to a venture's success in various ways –such as lowering its operational costs or enhancing its value proposition toward third parties.Originality/valueWhile in the past years commercial enterprises have been disrupted by the emergence of freemium platforms, the social enterprise field has barely taken notice. We extract lessons and implications from this paradigmatic change for the theory and practice of business model innovation in social enterprises, of particular relevance to Latin America, where social and environmental disequilibria remain a recurring feat.