Why You Should Never Pay for a Premium Online Subscription

To the average user, free media sites such as Hulu, YouSendIt, Rhapsody and others operate on the same business model as a corner crack dealer: Take a taste for free. When you need more, you'll pay.

After hooking millions of U.S. users, Hulu, for example, recently unveiled a $9.99/month Hulu Plus service in hopes of converting its free user base into paying customers who want more and newer content. Free photo sharing site Flickr offers unlimited uploads and storage in an upgraded pro account for an annual fee. Free online streaming music services such as Spotify (in Europe and supposedly soon in the U.S.) and Pandora offer commercial-free play or mobile downloads as premium services in hopes of increasing subscriptions.

But the assumptions most people have about the freemium model are wrong, say some of the most successful service providers. They're not dependent on your premium bucks. "It's not the goal," Pandora founder Tim Westergren tells Fast Company. "We're fundamentally believers in free. The subscription business is growing nicely, but it's not the cornerstone of our business. It's not that we are trying to push people into subscription, or cripple our free service. That's not our strategy." Instead, Westergren is focused on one thing: expanding market share. It seems to be working.