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Gratis can be a good business. How? Pretty simple: The minority of customers who pay subsidize the majority who do not.
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"Freemium," a free version supported by a paid premium version. This model uses free as a form of marketing to put the product in the hands of the maximum number of people, converting just a small fraction to paying customers.
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With physical stuff, samples must be doled out sparingly -- there are real costs to be paid. With bits, the free versions are too cheap to meter and can be spread far and wide.
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All this worked well in a rising economy, where non-monetary riches such as attention (Web traffic) and reputation (Google PageRank, which determines how high your site will appear in a search) could be turned into cash with the wave of a venture capitalist's wand or a well-timed acquisition.
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Web startups are having to do the unthinkable: come up with a business model that brings in real money while they're still young.
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The standard business model for Web companies that don't actually have a business model is advertising.
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Facebook is an amazingly popular service, but it also an amazingly ineffective advertising platform.
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Running Google's Adsense ads on the side of your blog, no matter how popular it may be, will not pay you even minimum wage for the time you spend writing it. On a good month it might cover your hosting fees. I speak from experience.
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What about the oldest trick in the book: actually charging people for your goods and services? This is where the real innovation will flourish in a down economy. It's now time for entrepreneurs to innovate, not just with new products, but new business models.
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Microsoft, which now has to compete with the free word processors and spreadsheets of online competitors such as Google. Rather than complain about the unfair competition (which would be ironic), Microsoft created Web versions of its business software and offered them free to small and young companies.
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But extracting a business model from free is not always easy, especially when your users have come to expect gratis.
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the exit doors are closed and cash flow is king.
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Free is not enough. It also has to be matched with Paid. Just as King Gillette's free razors only made business sense paired with expensive blades, so will today's Web entrepreneurs have to not just invent products that people love, but also those that they will pay for.
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Violy AdvisorsOver the past decade, we have built a country-sized economy online where the default price is zero -- nothing, nada, zip. Digital goods -- from music and video to Wikipedia -- can be produced and distributed at virtually no marginal cost, and so, by the laws of economics, price has gone the same way, to $0.00. For the Google Generation, the Internet is the land of the free.
Which is not to say companies can't make money from nothing. Gratis can be a good business. How? Pretty simple: The minority of customers who pay subsidize the majority who do not. Sometimes that's two different sets of customers, as in the traditional media model: A few advertisers pay for content so lots of consumers can get it cheap or free. The concept isn't new, but now that same model is powering everything from photo sharing to online bingo. The last decade has seen the extension of this "two-sided market" model far beyond media, and today it is the revenue engine for all of the biggest Web companies, from Facebook and MySpace to Google itself.
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Economics of Giving Away
John Kuczala
Economics of Giving Away
Economics of Giving Away
In other cases, the same digital economics have spurred entirely new business models, such as "Freemium," a free version supported by a paid premium version. This model uses free as a form of marketing to put the product in the hands of the maximum number of people, converting just a small fraction to paying customers. It's an inversion of the old free sample promotion: Rather than giving away one brownie to sell 99 others, you give away 99 virtual penguins to sell one virtual igloo. (Confused? Ask a child: This is the business model for the phenomenally successful Club Penguin.)
With physical stuff, samples must be doled out sparingly -- there are real costs to be paid. With bits, the free versions are too cheap to meter and can be spread far and wide. That's why so many people businesses (expensive!) are turning into software businesses (cheap!), which is why your cranky tax accountant ha -
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Venture capital has dried up, Google is killing products rather than buying them, and Yahoo can barely support itself, much less look for others to fund. What does that do to Free as an economic model?
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Christopher ArnoldIn a battered economy, free goods and services online are more attractive than ever. So how can the suppliers make a business model out of nothing?
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06 Feb 09
Gosia StergiosExpect the shift toward open source software (which is free) and Web-based productivity tools such as Google Docs (also free) to accelerate. The cheapest and coolest computers today are "netbooks," which sell for as little as $250 and either ship with fre
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Tac AndersonI'm really looking forward to Chris' book coming out.
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Not all of the people or even most of them -- free is still great marketing and bits are still too cheap to meter -- but enough to pay the bills. Free may be the best price, but it can't be the only one.
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03 Feb 09
Adriana Lukasperhaps time for 'because effect' models? making money 'because' of something rather than 'with' something.
business web2.0 businessmodels internet technology twitter freemium trends analysis economics delicious
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Maria KokidouIn a battered economy, free goods and services online are more attractive than ever. So how can the suppliers make a business model out of nothing?" /><meta name="subsection" content="Business" /><meta name="section" content="Article" /><script type="text/javascript" language="javascript" charset="ISO-8859-1
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02 Feb 09
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Gary EdwardsIn a battered economy, free goods and services online are more attractive than ever. So how can the suppliers make a business model out of nothing?
ust as King Gillette's free razors only made business sense paired with expensive blades, so will today's Web entrepreneurs have to not just invent products that people love, but also those that they will pay for. Not all of the people or even most of them -- free is still great marketing and bits are still too cheap to meter -- but enough to pay the bills. Free may be the best price, but it can't be the only one. -
01 Feb 09
Colleen WilliamsIn other cases, the same digital economics have spurred entirely new business models, such as "Freemium," a free version supported by a paid premium version. This model uses free as a form of marketing to put the product in the hands of the maximum number of people, converting just a small fraction to paying customers. It's an inversion of the old free sample promotion: Rather than giving away one brownie to sell 99 others, you give away 99 virtual penguins to sell one virtual igloo. (Confused? Ask a child: This is the business model for the phenomenally successful Club Penguin.)
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J BlackIn other cases, the same digital economics have spurred entirely new business models, such as "Freemium," a free version supported by a paid premium version. This model uses free as a form of marketing to put the product in the hands of the maximum number of people, converting just a small fraction to paying customers. It's an inversion of the old free sample promotion: Rather than giving away one brownie to sell 99 others, you give away 99 virtual penguins to sell one virtual igloo. (Confused? Ask a child: This is the business model for the phenomenally successful Club Penguin.)
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In other cases, the same digital economics have spurred entirely new business models, such as "Freemium," a free version supported by a paid premium version. This model uses free as a form of marketing to put the product in the hands of the maximum number of people, converting just a small fraction to paying customers. It's an inversion of the old free sample promotion: Rather than giving away one brownie to sell 99 others, you give away 99 virtual penguins to sell one virtual igloo. (Confused? Ask a child: This is the business model for the phenomenally successful Club Penguin.)
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edtechtalkjm: Chris Anderson *mr. longtail ... examines "free" business model ... just in time for upcoming release of his new book of same name
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31 Jan 09
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Howard RheingoldOver the past decade, we have built a country-sized economy online where the default price is zero -- nothing, nada, zip. Digital goods -- from music and video to Wikipedia -- can be produced and distributed at virtually no marginal cost, and so, by the l
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