The Economics of Free in Online Businesses

Robbie Kellman Baxter

Grandma says GIVING product away is risky business

But FREE seems to be everywhere

FREE feels ubiquitous on consumer side

B2B is thinking about FREE too

Three kinds of FREE

limited by solution attributes

limited by duration

focus on ancillary audience

Benefits of FREE

Risks of FREE

FREE is a tactic; Profitability is the goal

Sources of Revenue

Subscription

A la carte services

Ancillary products

Partnership streams

Aggregated analytics

Advertising

CASE STUDY: Market Research Tools

Market Research Tools

Primary Customer? Market researchers

Secondary Customer? Consumers

Free or Freemium? Freemium offering for individual marketers

Benefits of Free? Virality, Conversion, Awareness

Limitations of Free? Features, Reach,

Revenue Streams? Subscription, a la carte

Additional Learnings? Need to understand early how free fits model

CASE STUDY: Video and voice services

Video and voice services

Primary Customer Consumer and business users

Secondary Customer

Managers

Free or Freemium? Freemium as primary service offering; Free trial for admin

Benefits of Free? Networked effect; Awareness, Trial

Limitations of Free? No administrative services, must be online, no forwarding

Revenue Streams Subscription, a la carte, credits,

Additional Learnings Consumers and business users are the same people

CASE STUDY: Restaurant reservation system

Video and voice services

Primary Customer Restaurants

Secondary Customer

Diners

Free or Freemium? Beemium

Benefits of Free? Networked effect (on both sides)

Limitations of Free? Free offering is ancillary

Revenue Streams Subscription, product, services

Additional Learnings Careful planning may create new sources of value

CASE STUDY: Digital News

Digital content creation services

Primary Customer Newspaper readers

Secondary Customer

Publishers

Free or Freemium? Freemium, Free Trial

Benefits of Free? Networked effect, awareness, trial, virality

Limitations of Free? Volume of free, duration, depth

Revenue Streams Subscription, platform, issues

Additional Learnings Challenges when variable costs are not zero

Does free make sense for you?

THANK YOU!

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