Freemium Killer Apps: The Interdependent Effects of Business Model and Product Functionality on Superior Performance

Freemium products must attract a disproportionately large user base to capture value, but they are often “hit or miss”. Which freemium products are best positioned to becoming a killer app, and under what conditions? Drawing on freemium’s distinguishing features of low adoption barriers and rapid diffusion via word-of-mouth, we argue that freemium products that incorporate social functionality and are released on a platform with a large installed base have a higher probability of becoming a killer app than freemium products without such functionality and similar products that are paid. We test our hypotheses on a sample of 9,700 products released on Steam, the market-leading distribution platform for digital PC games. Our findings contribute to the literatures on business models, network effects, and digital strategy.