Could the Freemium Model Work As An Auction?


I left a comment on a post over at OutSide The Valley. The post was about EyeJot, which is a neat idea, but the discussion was around the business model. They are using the ever popular Freemium, but like all companies using such a business model, they seem to be struggling with the cut-off point between free and premium services. My comment was that if you can cover your costs with just a small percentage of users paying for service, then do that – otherwise, don't waste your time. Of course, that is only relevant if your business model benefits heavily from network effects. Otherwise, additional free users don't help that much. Here is how I see the decision tree. (click and zoom for a better view)Photo Sharing and Video Hosting at Photobucket

As I was thinking about it, I wondered if it would be possible to extract maximum value from the small percentage of users who are willing to pay. After all, they should probably be willing to pay different amounts, as some value the service more than others. How could you charge that way?

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You could auction off premium services every month. Could a company like EyeJot limit their premium accounts to 50 a month, and let people bid on them? They could take blind bids, where users don't know what any other users are bidding. Then the top 50 bidders get accounts. Would it maximize revenue? Would it aggravate users? Would it hurt revenue because it restricts supply? Would it create scarcity? I'm not sure, but if you know of anyone that has tried this in the context of a freemium pricing model, please send the link(s) my way.

bidder pic uploaded by Wine and Wishes