CMA Intermediate · Operations Management and Strategic Management · Digital Strategy
A mobile-app firm offers basic budgeting features free to all users and charges Rs 199 per month for advanced analytics. Management notes that only a small share of users pay, yet the paying users' revenue covers the cost of serving everyone. Which statement best describes this model?
The model is freemium. A basic version is free to attract many users, while a minority pay a monthly fee for advanced features, and their payments cover the cost of serving all users. It is not advertising-funded, not razor-and-blade, and not a licensing transfer of ownership.
- AFreemium: free basic tier cross-subsidised by a minority of paid premium usersCorrect
- BRazor-and-blade: the free app is sold below cost to lock in a consumable purchase
- CPure advertising model: revenue arises only from third-party advertisers
- DLicensing model: the firm transfers its software ownership to each user
Explanation
A free basic tier with a paid premium tier funded by a small paying share is the freemium model. Razor-and-blade requires a complementary consumable bought repeatedly. The question states revenue comes from subscriptions, not advertisers, and users do not receive ownership of the software.
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