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Premium v Freemium v Subscription

Why don't we charge for Tap2Tag?

When looking at an on-line service there are three main pricing strategies: Premium, Subscription and Freemium.  So what is the right choice for your product or service?

In 2013 around 71% of all revenue was generated on free iPhone apps (or freemium content).  This means that the app itself was free but other features (virtual goods, extra levels, services etc) were made available during in play usage.  A further 24% came from Premium content within the iPhone app store (one off purchase).  So you can see (by doing a little maths) how little came from the subscription based content!

So apps are all about the up sell.  Attract the customer in with some free service (easier with web based products) and then try and up sell other services once you have them on board.  How would a customer be put off by an upfront fee to pay for an app or an on-line service.  So let's get into the specifics.

Premium on-line services (such as apps) have an upfront price before they can be downloaded or used.  Similar to licensed software, except that the phone app stores make all future upgrades to the premium service free of charge once the customer has made their purchase.

Compare this with freemium where the service is free to use and download.  However some features within the service are unavailable until you pay for them (extra lives etc).  App stores make it really simple for businesses to charge small amounts of money inside the app or service.

Subscriptions are a regular fixed fee the user is charged automatically for using the service.  Magazines or other "print" media often charge a subscription to view their products on-line.  Subscriptions can often overlap with other premium or freemium models.  For example Spotify requires a subscription to even use the premium app, while Pandora is closer to freemium where you can pay a subscription to get ad-free and unlimited hours of music.

But this is not the end of the conundrum.  What about a free to use service where there is no premium content?  Revenue is generated from advertising and clicks and other clever stuff that advertisers in the 1980's could only dream of.  As a consumer we have almost become blinkered to this method of revenue generation.  Just ask the 1.55 billion Facebook users.

Strengths and Weaknesses of a Subscription based service

Compared to the other business models, subscriptions tend to offer medium revenue potential and medium to high profit potential. Subscriptions are uncommon (but not unheard of) with premium products and services, but at the right price point, the company can see high volume. Subscriptions can offer high profit potential depending on customer usage. For services that are lightly used, the cumulative subscription fees will more than cover operating expenses.

Relative to other retail models, the subscription model tends to be fairly low in complexity. Most companies that employ subscriptions only need to manage 2-3 pricing tiers, instead of pricing individual products and services.

Depending on pricing and timing, subscriptions can either raise or lower switching costs for customers. In general, switching costs are relatively low on-line, with competitors only a click away on the internet, but services where customers accumulate information or network benefits, it becomes hard to switch to a competing service.

From the customer perspective, subscription services can have drawbacks, particularly for those who hate recurring automatic charges. In general, customers find the benefits will outweigh these concerns. Many companies use subscriptions to help customers spread out or lower payments for a service that they would have to pay much more for up front. In addition, subscriptions provide guaranteed access, which many customers appreciate.

However, for a new product or service, attempting to charge a subscription puts an immediate barrier to securing that new customer.  This is especially true when the product is innovative or uses technologies that have yet to be common place in general parlance.

So what is the Tap2Tag service?

For those who are new to tap2tag, we sell medical alert devices that can be scanned by first responders to reveal a patient's medical information.  Customers store their information on a secure web portal and the devices they purchase are linked to that profile.

The system uses, in part, a new technology built into mobile phones called Near Field Communication (or "NFC").  By simply tapping a NFC enabled phone against the device the medical information simply appears on the first-responder's mobile phone.

So the question we keep asking ourselves is "Are we selling a product with a service attached?" or "Are we providing a service for the price of a product?".  After three years we think we are getting closer to the answer but that might all change again by breakfast tomorrow!

In essence we sell products that generate an immediate profit.  We are then allowing customers for an ongoing use of our software and portal to maintain their medical information.  So, at the moment, this is a FREE service that is benefiting many vulnerable individuals.  But tap2tag will soon be moving into the Freemium sector as we enhance features within the system.  We hope to be able to link the tap2tag medical profiles with the NHS Summary Care Records ("SCR") that will provide immediate updates of a client's medical information direct from the NHS records.  Our system is so versatile that it can also link with any other medical database.  By including this functionality to our customers we will seek to request a small subscription if they want this service.

More importantly though, we do not wish to disenfranchise our existing and loyal customers so our intention is to always offer the free portal service where customers can update their own information.  In fact some of our customers know more about their medical conditions than their healthcare team!

What's right for you?

So we have talked a little about the different approaches to ongoing revenue streams in a service based environment but choosing the right one for you is going to be a personal choice.  Subscriptions seem an easy choice, especially in a market where subscriptions are already charged.  But if you are trying to create a unique selling proposition offering anything for FREE certainly catches the eye.  Before you choose your route find out what your customers want.  We certainly did this with tap2tag.  Catch a customer who has just been sent a renewal form from their service provider and say you can do the same for free, then the sale is very easy indeed.

Tap2Tag are in the process of seeking investment to accelerate the growth we have experienced over the last few years, especially in overseas markets.  If you would like to join us on our journey please click on the link here.

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