The (digital) free for all

17 May 2010|Added Value

How do you build a profitable business model around giving things away for free? If  it’s not something you’re thinking about, then perhaps now’s the time.  Free is fast becoming a favoured route to market.  And as more consumers experience the free economy, they’ll be expecting the same from all kinds of categories.

The trend is not strictly new.  Chris Anderson first explored the implications in his book ‘Free’ in 2009 and the web has been talking about Freemium for a while.  The movement started online, where many internet business models rely on attracting new consumers by providing a free version of their offering, then capitalizing on either advertising or premium upgrades to make money.

Clip: Chris Anderson discussing Free

Think of Google, iTunes, Wikipedia and Skype.  Free software downloads, free news content, increased product sampling, free user to user services, unlimited online email storage, try before you buy.  People have begun to experience – and expect – free as the norm.

Vinny Lingham, founder of Yola, a business based on giving away websites for free, and then selling premium add-ons, explains the new business model.  He says free isn’t a business in itself, but is rather about extracting value in a different way that is focused on large scale and aggressive customer acquisition. If a portion of your free users upgrade to paid services then you have a business.

Interestingly, News Limited’s decision to charge for content taps into a smaller counter trend for “quality” in this landscape of information overload, but it goes against the far more overwhelming trend of free.  There will be people willing to pay for this content, but their overall readership will go down. It seems the future of media distribution online will need to have a combination of both free and paid content and services.

And it’s not just digital.  Free will penetrate the physical product world much more over the next few years.

Think about banks, for example.  In some markets, banks no longer charge for using their basic services, but start adding the fees as users demand more premium services.  Trendwatching.com talks about Trysumers or Tryvertising, an increase of free-sample based product marketing activities designed to introduce consumers to new brands in a low risk way.  And in Japan the Sample Lab is a retailer who offers customers anything they want for free.  It costs 1000 Yen for membership, but consumers can test out everything from cosmetics to food to electronics before they go on general release.

We have been working closely with clients like global telecoms brand Vodafone on the implications of Free, both as an opportunity and as a threat.  It’s going to be hard to let go of old paradigm business models, but we believe that those clients who start scenario planning and shifting their mindsets into new ideas of value, particularly to drive innovation pipelines and strategic planning, will be better equipped to deal with a rapidly changing world.

Written by Peter Drinkwater, Added Value Australia

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