Freemium is supposed to work because FREE is very powerful (read Predictably Irrational by Dan Ariely - chapter 3). You can get many users to sign up for free

Freemium is supposed to work because FREE is very powerful (read Predictably Irrational by Dan Ariely - chapter 3). You can get many users to sign up for free and they can be great advertisers for you. However, providing something for free can also trick you in deciding which features to build and whether people really want the thing you build. The difference between free and $1 is much bigger then $1 and $10. I believe that is where a lot fremium startups fail. They just assume 5% of free will convert. Nope: in many cases it is 0%. So I never sign up for service which is free and there is no way to upgrade to some paid version. Even if they are in beta.