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A Summary of Freeconomic Business Models

By Paul Watson on .

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

Description

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.

Examples

The Cross-sell Free Model

Description

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).

Examples

The Sponsorship/Ad-Supported Free Model

Description

A product is given away free, and the creators make their money from adverts embedded in or around the product.

Examples

The Patronage-supported Free Model

Description

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).

Examples

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Camefix
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I share music files. I’ve noticed that the music may be of any age and style but people like it so they ask for it or offer it. So, Purcell’s new ground, cry me a River by peggy Lee and Hurry On Down by Nellie Lutcher are being passed around. I enjoy this indie approach to my listening because I am widening our musical horizons. Also, I’m sure Hot Chip are only so popular because of this viral way of spreading their music; and yes, I pay for downloads off tesco too.
So, Purcell and Peggy Lee being long dead don’t benefit from having their music spread but we listeners do; and up and coming bands get publicity in the same way as flickr publicises our photos.

Barry Bloye
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Freeconomics in action: http://arstechnica.com/uncategorized/2008/04/last-fm-free-music-streams-turn-into-increased-music-sales/

ArsTechnica: “Last.fm: Free music streams turn into increased music sales”

“Last.fm’s free, ad-supported music streams have resulted in a 119 percent increase in music purchases through Amazon, the company said today. The service, which launched just over two months ago, has also brought on a number of new users, although old users are contributing to the trend as well. Last.fm believes that, while the service is still young, the proof is in the pudding: allowing users to have full-track previews drives music sales, both digital and physical.”