The term "freemium" refers to a business model in which a company gives away a basic product for free to attract users while generating revenue by also selling premium features (more features, more capacity, etc.) to the customer base. As described by Fred Wilson, a venture capitalist on whose blog the term was proposed and coined in March of 2006, a company's freemium strategy is to:
"Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base."
The freemium business model is most often associated with Web-based services and the software industry, but can also be used in other industries. Popular examples of the freemium model in practice include Pandora, Flickr, Skype, Evernote (reviewed here), and Dropbox.