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Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
Introduction and History of Free
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Introduction and History of Free

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This is the first lecture in Stanford BUS 21 Monetizing Free: How to Make Money b y Giving Things Away

This is the first lecture in Stanford BUS 21 Monetizing Free: How to Make Money b y Giving Things Away

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  • 1. Stanford BUS-21 Martin Westhead Mastering Marketing Introduction How to make money by giving things away
  • 2. Introduction  Free can really make money  It is controversial - Is free killing other industries and businesses? - Does Freemium work?  What do we mean by Free?  A Brief History of Free - Free Lunches - Jell-o, King Gillette - Free Radio  New Free - New kinds of Free and - Models for making money from them - What free products bring you
  • 3. Free Monty Python November 2008
  • 4. Free Monty Python: Results – 3 months later  Monty Python DVDs - No. 2 on Amazon  230x (23,000%) increase in sales - Reminded people how much they loved MP - …and they wanted more.  Cost to Monty Python: - $0 - Plus a little curration work
  • 5. Free businesses make money $8B (10 yrs) $60B (14 yrs) $0.7B (8 yrs) Revenues for 2013 $1.5B (11 yrs) $0.65B (10 yrs) $0.16B (11 yrs)
  • 6. FREE IS CONTROVERSIAL
  • 7. Federal Trade Commission Guidelines  Only guide written for the use of a word in commerce: “Free” (1971)  Explain free offers - Obligations a consumer has - Is there a catch? http://www.alllaw.com/articles/legal/article11.asp http://www.gpo.gov/fdsys/pkg/CFR-2011-title16- vol1/pdf/CFR-2011-title16-vol1-part251.pdf
  • 8. Is Freemium Dead? Why the Freemium Model Doesn't Work – Mashable Freemium has run its course — Tech News and Analysis – Gigaom When Freemium Fails - WSJ
  • 9. Technology hype curve (Freemium)
  • 10. Two sides to free
  • 11. Village Voice  1996 gave in and went free  2005 New York magazine  Considered “killed” by free The Voice from Beyond the Grave: The legendary downtown paper has been a shell of its former self since it went free
  • 12. The Onion  Started in 1988  Free satirical broadsheet  Expanded to - 10 cities, - millions of web hits - TV production - Feature length movie  Free and continues to thrive
  • 13. So, does FREE mean low quality?  Free saved the Village Voice - Circulation had fallen to 130K from 160K - Now at 250K - Free saved it  But there is a perception of diminished quality - Feelings are relative not absolute - The Voice used to cost and it does no longer… - The Onion was always free - Free bagel is stale – Free ketchup is fine
  • 14. WHAT DO WE REALLY MEAN BY FREE?
  • 15. Definition
  • 16. The Two Meanings of “Free”  Gratis - No Charge - Free as in “Beer” (or Lunch) - Primary focus of this class  Liber - Freedom - Free as in “Speech” - Will mention in passing e.g. discussion of Open Source
  • 17. The Two Extremes of $0 Products Cost built in “No such thing as..” No cost to me “truly Free Lunch” Buy on get one free Free Shipping Free gift inside Free phone with contract Google Search Wikipedia Facebook YouTube Flickr Linux Dropbox
  • 18. BRIEF HISTORY OF “FREE’
  • 19. Free Lunch  1870–1920 – free lunch with purchase of a drink - Saloons and bars in the US  1891 Rudyard Kippling - Not just eating but “wolfing” on food - Overwhelming enthusiasm A free lunch-counter is a great leveler of classes, and when a man takes up a position before one of them he must give up all hope of appearing either dignified or consequential. - 1875 The Times The repast included "immense dishes of butter," large baskets of bread, "a monster silver boiler filled with a most excellent oyster soup," "a round of beef that must have weighed at least forty pounds,” http://en.wikipedia.org/wiki/Free_lunch  Lunch was typically worth 6x the drink price but… - Patrons often stayed for more drinks - Came back at other times of day
  • 20. Jell-O  1854 Peter Cooper - Obtained patent for powdered gelatin  1895 Pearl Wait - Added flavors, color, brand - But still had trouble marketing it  1899 sold to Orator Woodward - Still struggled to sell it  1902 with marketing chief, William Humelbaugh - Free samples too expensive - Instead give away free information – recipe booklets - Supported by a newspaper ad - Distributed by a travelling sales force  By 1906 hit $1m in annual sales
  • 21. King Gillette  Invented disposable razor - Anti-capitalist  Sold cheap razors to partners who bundled them free - Banks “save and shave” - Gum, Tea, Coffee, Marshmallows  Created a demand for blades - Recipes created demand for Jel-O  Same business model used today: - Printers – cheap printers, expensive cartridges Invent something that people use and then throw away – Advise from Gillette’s boss
  • 22. The Radio Business Model  1925 Dawn of the commercial radio industry - Distance fiends  No one knew how to pay for content  Content paid for by radio manufacturers (e.g. RCA)  Radio Broadcast magazine competition - 800 people entered, ideas included - Listener contributions (NPR) - Government licensing (BBC) - Pay for listings - Advertizing suggested but not popular
  • 23. Radio Advertizing  1926 NBC’s Frank Arnold - Determined to give radio advertizing a try - “Fourth dimension” – print, flyers and billboards - “Guest in the listener’s home”  Problem with radio interference - Local station signal drown out distant station - Creation of the FCC - Not enough local advertizing  Solution came from AT&T - National radio network  Big audience critical for advertizing
  • 24. Multi-party business model Network Audience Advertiser Content Producer Content $ Content Attention $
  • 25. NEW FREE AND WHY ITS GOOD
  • 26. How is 21st century Free different?  Digital/Online Free is different - Key costs are falling rapidly - Feasible to round down - Technologysupports mechanics… - E.g. subscription billing management - Consider customer lifetime value - …and massive volume - Needed for advertizing, Freemium - Anything where network effects are important  …but giving things away is easy, how do you make money…
  • 27. Free Models 1. Direct cross subsidy - 20th century free - Buy 1 get one free / Free toy inside - (Not really free) 2. Platform - User get service for free - Someone else pays - Access to users - Data of users 3. Freemium - Most users get free product - Some users pay for premium features 4. Donations / Pay-what-you want - Users decide how much the product is worth - Some get it for free
  • 28. Benefits of Free  Free can lead to rapid growth - Volume makes more business models work  Accelerate technology adoption - Quick way to cross the chasm  Mindshare markets of - Reputation - Attention
  • 29. Technology adoption
  • 30.  Tumblr – lightweight blogging platform - 300M monthly uniques (according to Yahoo) - 100M Blogs - No revenue  Bought by Yahoo for $1.1B – Why? 1. Value of “reach” - Tumblr moved Yahoo from comscore #3 to #1 2. User data 3. Future monetization opportunities - Yahoo is good at Monetizing content - E.g. Native ads, Mindshare effects: Why did Yahoo buy Tumblr?
  • 31. Mindshare effects: Pricing a glossy magazine  3 prices 1. Free online 2. $4.95 at newsstand 3. $10 for 1 year subscription  1 & 2 are purely economic  Subscription price is a balance - Cheap to increase subscriptions - Expensive to show commitment to advertisers - It’s a loss-leader, but can’t go to $0
  • 32. Free is like an Economic force of gravity Near zero marginal cost of reproduction Price of copies will fall to $0
  • 33. My Free Experiment The Flower of Scotland  Fantasy Sci-Fi story set in an alternate Scotland - Terrorist fighting for Scottish Separatism - Mari McLeod a barmaid on Skye – only one who can save the world  Free PDF on Website  Free books for class  One condition - If you like it – please post an Amazon or Goodreads review
  • 34. Summary  Free can really make money  It is controversial - Is free killing other industries and businesses? - Does Freemium work?  What do we mean by Free?  A Brief History of Free - Free Lunches - Jell-o, King Gillette - Free Radio  New Free - Models for making money from Free
  • 35. Next week  The Psychology of Free - Why Free works  Model: Direct cross subsidies  Guest speaker: Peter Fishman - Principal Analytics Manager, Yammer, Microsoft

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