The word "freemium" is a blend of "free" and "premium." It's a business model where a company offers a basic version of its product or service for free, with the hope that some users will eventually pay for an upgraded, premium version with more features.

Think of it like a video game. You can download and play the first few levels for free. This gives you a taste of the game and gets you hooked. But if you want to unlock new characters, access special levels, or get powerful items, you need to pay. The core experience is free, but the enhanced experience costs money.

This model is incredibly popular for software, apps, and online services because the cost to serve one more free user is often very low.

While the term "freemium" was coined in 2006, the concept has been around longer. It evolved from an earlier model called shareware, popular in the 1980s and 90s. With shareware, developers would distribute their software for free on floppy disks or through online bulletin boards. Users were encouraged to share it with friends, but they had to pay a registration fee to unlock the full version or to continue using it after a trial period.

The rise of the internet made this model far more powerful. Distributing software online is virtually free, allowing companies to offer a free version to millions of users at minimal cost. This scale is what makes the modern freemium model possible.

Freemium is often confused with other pricing strategies, but the differences are important. It's not the same as a free trial, which gives you full access to all features for a limited time. Once the trial ends, you must pay to continue using the product at all. A freemium product's basic tier is free forever.

It also differs from a purely ad-supported model, like broadcast television or many social media sites. While some freemium products might show ads to free users, their main goal is to convert those users into paying subscribers, not just to earn ad revenue.

Finally, it's the opposite of a traditional pay-to-use model, where you have to buy the product before you can use it at all.

At its core, freemium is a powerful way to attract new customers. It removes the risk of a purchase, letting people experience the value of a product firsthand. The bet is that a small percentage of those free users will become so engaged that they'll happily upgrade for a better experience.