Building on Chris Anderson’s article Free! Why $0.00 Is the Future of Business I wanted to try to summarise some of the freeconomics models that have been tried out so far (if I’ve missed any, please feel free to add them in the comments).
For the purposes of this summary I’m ignoring products or services that are free because of government grants or funding. I’m also ignoring models which claim to have a free component, but the free item can’t be gained without paying for another product/service (for example, phone companies that give you a free mobile/cell-phone so long as you sign yourself into a minimum-duration contract). Finally I’m excluding “free sample” offers, because it’s a non-sustainable temporary discount rather than a long-term model.
The Freemium Model
In this model, the basic service or product is free. The majority of people will be happy with the free version. Production/service cost-retrieval and revenue come from the minority of people choosing the premium paid-for version(s). The word “freemium” was coined by venture capitalist Fred Wilson.
- Simple 2-tier: Flickr – the basic service (with a limited monthly upload) is free, but an enhanced version (with no monthly limit) is available at a cost.
- Multi-tier: Nine Inch Nail’s recent Ghosts release. 9 free tracks are available for download for free. The full 36 tracks are available for download for $5. Various limited edition high-(visual/tactile aesthetic)-standard production CD/DVD versions are available for higher prices (full details on Techdirt).
The Cross-sell Free Model
In this model, one service/product is free and one or more different—but related—service/products are available at a cost. A percentage of the people who enjoy the free product will also want to have the related non-free product(s).
- A band makes all their recorded songs available for free on the web in order to attract people to their (pay-for-entry) gigs. Additional non-free products available might include merchandise.
- An author blogs about a subject over time & in depth (free content), then publishes the same content—edited into book format—as a paid-for hardback/paperback book.
- A piece of software—e.g. a Linux distro—is free, but a technical support contract is available at a cost for those that want it.
The Sponsorship/Ad-Supported Free Model
A product is given away free, and the creators make their money from adverts embedded in or around the product.
- Mozilla Firefox – the Firefox browser is free, and Mozilla receive about $72 million from Google for making Google’s search facility the default search engine in the search bar at the top of the browser.
- Google – Google’s search engine is free, but is supported by adverts running on Google’s AdSense advertising network.
- The free newspaper I read on the bus on the way to work – the cost of the newspaper is paid for by adverts throughout the paper.
- Commercial terrestrial television channels.
The Patronage-supported Free Model
The product is free, but people are encouraged to financially contribute. Reasons to pay might include goodwill/appreciation, or some more tangible “reward” (e.g. being visibly acknowledged as a financial contributor or having some input into the final product).
- Radiohead’s “pay what you want” release last year. Although strictly not free (the credit card processing fee was obligatory) fans could choose how much they wanted to contribute. The average contribution was $5.
- Wikipedia—or rather the Wikimedia Foundation—is mainly funded by public donations who are listed at http://wikimediafoundation.org/wiki/Benefactors