What should be offered for free and what for premium in a freemium service? a two-stage approach of Kano & path analysis to the design of freemium services

The freemium model, a business model that provides basic functions for free and makes a profit by providing advanced functions at a premium, has been widely adopted in various industries. To acquire enough customers and generate revenues from the freemium model, the proper allocation of free and premium functions is essential, but little research has been done in this direction. This study proposes a two-stage approach that combines the Kano model and the technology acceptance model (TAM) as a conceptual design method of freemium services. First, Kano analysis is performed to divide the functions of services into three types, must-be, one-dimensional, and attractive functions. The must-be functions are regarded as free functions, and low and high-level one-dimensional functions are classified as free and premium functions, respectively. Then, we perform path analysis based on TAM to identify additional premium functions that affect willingness to pay. We allocate free and premium functions of personal cloud service using the proposed approach and compare the results with the current functions of Dropbox, One Drive, and Google Drive. The proposed two-stage approach is expected to be practically used for designing service concepts based on the freemium business model in various industries.