The idea of getting music for free was limited to burning CDs – which sounded terrible. Then in 2005 a friend introduced me to Pandora, then Spotify, and now I spend just $120 a year on music.


Chances are, if you are like me, you don’t spend much on music. Most people don’t even splash out, they just endure the ads on streaming services and listen for free, maybe go to a concert every now and then.

Freemium content is the ultimate ‘try before you buy’ concept. The problem is: not everyone buys.

Music is one of the early adopters of online streaming and there’s a lot to be learned from the mistakes of this model.

Like Pandora or Spotify, a portion of Sharesight’s product is free, with the full feature set available in our premium packages: ‘free’ plus ‘premium’ equals freemium.

We help people with sensitive investment data, so freemium is a fair (and necessary) way for our customers to kick our tyres for as long and as hard as they wish.

There’s been some important developments in the music industry recently, with Apple redoubling their efforts via their Beats acquisition and Billboard finally recognising songs streamed in their “top” lists.

One thing has stayed the same: streaming music companies aren’t profitable. Even though Pandora has 250 million users, Spotify 60 million and iHeart Radio more than 50 million, these companies haven’t reached break-even.

There’s no doubt fintech companies are different to the music industry, but we can still take caution.

Watch out for the acronyms
Acronyms abound in freemium businesses, but a vital metric is CAC (client acquisition cost). If your CAC is greater than you expect someone to pay, you’re in trouble.

The CAC for streaming music companies is probably very low. Downloading the app to your mobile or signing up via Facebook is a minimal cost, while their spend on advertising isn’t crippling. Attracting the customers cheaply isn’t the problem.

It’s a different CAC bedevils these companies: content acquisition cost.

Streaming music companies claim that 70 per cent of their revenues are paid back to record companies and recording artists to license music. That might work if all users paid something, but the majority of their user bases never upgrade from free.

So even with low client acquisition costs, solid free to paid subscriber ratios and a gargantuan addressable market, it will be difficult to survive and prosper given that each new free listener means more “ears” to pay for.

Charge for your best stuff
Fintechs like Sharesight also pay to acquire some customers (for example, advertising on Google), but our ongoing fixed costs are low.

We rely on clients to provide content (such as their trade data) and license info from exchanges who charge fixed and variable fees, which are many times lower than 70 per cent of revenue.

The difference is that we keep features such as tax reporting, portfolio sharing and personalised support entirely behind our paywall.

This means the premium part of our model is truly a value-add: giving away all of our IP would send us into a death spiral. No paying clients = no revenue = no development or support = a terrible product plastered with banner ads.

What fintechs can really learn
From the very start, streaming music companies were far too generous with their content. Once that threshold was crossed it became far more difficult to convince people to pay with supplemental ‘features’ or discounted pricing.

Right now every song in the world is available on demand, across multiple devices, for free. If you’re willing to put up with a few advertisements (far fewer than terrestrial radio or TV), then you’ll become conditioned to expect free music.

I now spend less than 10 per cent of what I would have been willing to pay for music each year. Ultimately, the price people are willing to pay for music online seems to be stabilising at $9.99 per month.

Given the amount of content available, that’s incredible value. If Pandora or Spotify can’t make freemium work owing to the payouts necessary to the old-school music machine, then perhaps they were just ahead of their time or started off too generously in the bid to attract customers.

If they fail, I expect one of the ‘techmedia’ giants (probably Apple) to win out by simultaneously strongarming the record companies and leveraging their massive retail client base.

Fintechs must take from this a valuable lesson. While we believe that the freemium model does work, caution must be taken to ensure the free and premium inputs are carefully calibrated from day one.

What content or features to give away for free? How long does the free service last? What features to reserve for paid plans? How much to charge? How often to charge? These are the most important variables and the ones that can save us from a future filled with banner ads.

Doug Morris is the general manager of Sharesight, an online trading portfolio management software provider.