Why AI doesn’t mean the end of Freemium

It's a great time to be free.

I’ve been a Freemium fan forever. It’s the best. But LLMs are expensive, so does that mean freemium is dead? A lot of products seem to think so - locking every AI feature behind a paywall like it’s 2014 SaaS all over again.

But no, no. freemium isn’t dead. In AI, freemium has actually become the most rational irrational strategy we’ve got.

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Why? AI is redefining what is possible with tech, but people don’t wake up thinking, “Today is the day I adopt a multi-agent workflow that transforms my life.”

No, they wake up thinking, “I need coffee.”

AI is still unfamiliar and abstract for most humans. It’s opening up new categories (hello, vibe coding), but… you can’t explain the value. You have to let them experience it.

So freemium is the fastest way to teach a new category, increase value perception, and show what’s possible long before the scary pricing page ever appears. Until someone feels the magic, price is a moot point. ‘Show don’t tell’ has never been more applicable.

But yes, AI freemium is expensive. Oh so expensive compared to traditional tech SaaS.

AI has ~20-40% margin profiles vs. 80%+ in traditional tech, so this version of freemium can get super pricey. LLM bills are… painful. They hit every day and they hit heavy. Which is why most companies immediately hide AI capabilities behind paywalls or paid trials, but that’s just backwards thinking of trying to protect those dinosaur 80% margin profiles that should not be your guiding principles anymore. Instead, you need to treat freemium costs like a marketing expense.

Let me repeat. Your freemium is your marketing expense, not a cost center.

Think of this way: You can either…

• Spend money letting real humans build real things in your product
  OR

• Send those same dollars to Google and Meta to support their quarterly earnings results and pray someone who vaguely matches your ICP clicks an ad

I’d rather invest in value being experienced by the customers. This helps you collect the right product feedback, increases your prospect pool for paid plans, and gets your growth loop going … if you engineer it correctly.

The upgrade trigger is everything

If you want to understand how to set up Freemium correctly, check out this deep-dive post I wrote on the subject. But one of the most important lessons is: Freemium doesn’t work unless value lands before the friction of needing to pay.

At Lovable, our 5 daily credit limit is the key moment. Users begin building something real and watch it come alive - for free! They immediately want MORE, which is when they hit the freemium limit. The upgrade feels like a natural, no-brainer next step. It’s not forced. Hence - a solid 3-5% freemium-to-paid conversion rate.

Bad freemium experiences flip this. They demand payment before the user even knows why the product matters. Nothing kills your business faster than confusion followed by a paywall.

The goal is to set the trigger late enough that the user understands the value, but not so late that you’ve given all the value away and now you’re upside-down on LLM costs.

BUT! Freemium doesn’t end at conversion

The freemium approach isn’t something that ends when the user starts paying you. If you stop offering free value at that point, you’re not using this approach to its full potential. Even paid plans need freemium moments! So many companies miss this: Freemium isn’t just about free users - it’s about strategically giving your product away across the entire user lifecycle.

Even on paid plans, Lovable gives you 5 free daily bonus credits. If you run out of your purchased credits, you still have 5 credits every day to keep tweaking your app... every day. Tiny generosity, massive impact. Usage continues. Habits stay alive. Retention stays healthy.

AI products decay the moment usage stops. Down you drop into the Forgettable Zone and suddenly your competitors have the opportunity to sneak in. Even a few little “free tastes” keep product usage in motion.

Freemium-powered growth

Once you understand that you need to give away usage to allow people to experience the value, you’ll realize that you need to be applying this principle even more broadly. Think about how to give the product away in high-leverage moments. Generosity in this area can unlock all kinds of distribution.

At Lovable, we hand out credits to anyone running a hackathon, workshop, or classroom event on Lovable. Hackathons are the perfect pressure cooker - people build loudly, socially, and publicly. 50 people using your product at once is a distribution engine you cannot buy.

(If you want free Lovable credits for your event participants, submit your request here.)

We also partner with a ton of folks to give the product away. Lenny’s Newsletter has a Lovable offer. So does Emily Kramer’s MK1 newsletter. My Growth Scoop one is coming next week - yes, I’m late to the party, it’s already embarrassing so no need to rub it in.

Revolut gives their users free Lovable. Same with Stripe Atlas and Mercury. And we’ve got more partnerships in the works as we speak.

Why does this matter? These partners market Lovable directly to their user bases with almost zero competitive noise. Their customers are squarely in our ICP. This is the new way to do paid marketing.

Freemium users are your loudest marketers.

Let’s not forget the growth loop freemium unlocks. Free users always have the highest NPS. Value for money is unbeatable. And they talk. They share screenshots, links, and templates. They evangelize. They generate your UGC. They drive word of mouth in a way no paid channel can touch.

This is the kind of marketing money can’t buy, and honestly, the kind you could never afford to buy even if you tried.

So…

AI changes a lot, but it doesn’t change the fact that people need to understand your product’s value before they pay for it. And even if the built-in LLM costs make it more risky, the freemium model is still the absolute best way to let someone experience that value for themselves.

The bottom line: AI freemium is not your cost center. It’s not a growth hack. It’s a full-stack system for: education, activation, marketing, distribution, community, and retention - all at once.

It’s expensive, irrational, and is the only way to stand out.

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Edited by Jonathan Yagel.

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