Converting free users to paying customers in freemium services: a SaaS success model

A freemium strategy represents a popular business model for cloud-empowered services, in which a vendor gives away basic services for free and seeks to monetize premium services. The economic viability of freemium models depends on the vendor’s ability to convert free service users into paying customers. Different from prior studies that mainly examine users’ intention to pay, this study examines both users’ intentions to pay and their actual purchase behaviors by extending the IS success model to propose a software as a service (SaaS) success model. Our proposed model emphasizes two freemium-specific, user-oriented factors: (1) the fit between perceived value of provided services and user needs of premium services as a contingent factor, and (2) price consciousness resulted from free-mentality of SaaS as a moderating factor to understand how individual evaluations of provided services might lead to purchases of premium services. We empirically examine the proposed SaaS success model with data from 638 active SaaS users. The results indicate that SaaS users’ intentions to pay and actual purchase behaviors are shaped by their perceived value of and satisfaction with the provided services, moderated by price consciousness. Furthermore, the fit between perceived value and user needs has an important, contingent role in influencing users’ intentions to pay and purchase behaviors.