Moving Consumers from Free to Fee in Platform-Based Markets: An Empirical Study of Multiplayer Online Battle Arena Games

Companies in platform-based business markets have widely embraced freemium business models, in which profit is primarily determined by a minority of paying customers. However, the key challenge of these models is transitioning participants from free users to paying consumers. To encourage paid consumption, companies often rely on product differentiation such as providing consumers who pay for products or services with enhanced features. Product differentiation can be broadly classified into two categories: taste differentiation and quality differentiation. The authors demonstrate that extending the magnitude of taste differentiation is an effective differentiation strategy. Quality differentiation, however, is a double-edged sword and should be used with care. Increasing product differentiation leads to greater perceived value of the service, but undermines fairness perceptions.