Freemium / Free to Play / Crack Pricing.

We can talk about conversion rates all day. We can talk about growth curves, cost per user, etc, but it comes down to one specific thing, addiction.

Standard pricing structures seek to monetize access. This works well when value is clearly explained and understood. It is also inherently a model that attracts piracy, and attempts to ‘sample’ without payment. Ethics aside, this is what happens.

Conversely, freemium models monetize addiction, whether it be an actual mental / chemical process (like Farmville exploiting human psychology to encourage continuing play, and purchase to stay competitive), or a much more passive addiction that expresses itself as passion.

It’s crack pricing - the first one is free, because the distributor is betting you’ll pay for another, longer, deeper high, and eventually want the premium version of the product.

Of course, the cost of entry to crack pricing is creating something that will addict enough of the population to make it a profitable proposition.