The Concept of FREEMIUM: Imagine yourself doing your reports or schoolwork. You’re typing in your $250 “netbook” computer where you can use the operating system that comes with your laptop. You don’t even need to purchase a Microsoft Office to use for your documents because you can use the FREE Google Docs available in the internet where you can access through a FREE web browser like Firefox or Google Chrome. Even the WIFI is FREE, thanks to coffee shop you’re sitting in or your next door neighbor :P
According to Chris Anderson, FREE is not just a marketing gimmick, it has no strings attached from the consumers to the service providers and is not just a lure for the provider’s future sales.
There are many definitions of free, depending on the perception of the consumers and also by the purpose of the producers or company1) Paid products subsidizing free products - Loss leaders are a staple of business, from the popcorn that subsidizes the loss- making movie to the expensive wine subsidizing the cheap meal in a restaurant. Free just takes that further, with one item being not just sold at a fraction of its cost but given away entirely. This can be as gimmicky as a “free gift inside” or as common as free samples. This form of Free is ancient, familiar, and relatively straightforward as an economic model.2) The free cell phone with a two- year-subscription contract is a classic example of the subsidy over time. The hope of the carrier is that you won’t think about what you’ll be paying each year for the phone service but instead will be dazzled by the free phone you get today.3) For example, restaurants have promos wherein “kids get free meals”. The hope is that the free consumers will bring with them (in the case of the kids) paying consumers or that some fraction of the free consumers will convert to paying consumers.
Page 17For example: Shopwise/Department Store has a buy 1 get 1 DVDs to lure you into their shop in hopes of you buying their bigger items such as home appliances and bulk groceries. Companies look at a portfolio of products and price some at zero (or close to it) to make the other products, on which they make healthy profits, more attractive.
Page 17-18Here a third party pays to participate in a market created by a free exchange between the first two parties.For example: In the traditional media model, a publisher provides a product free (or nearly free) to consumers, and advertisers pay to ride along. “newspaper and magazine publishers don’t charge readers anything close to the actual cost of creating, printing, and distributing their products. They’re not selling papers and magazines to readers, they’re selling readers to advertisers. It’s a three- way market.”The costs are distributed and/or hidden enough to make the primary goods feel free to consumers.
LABOR EXCHANGE: Every time you search on Google, you’re helping the company improve its ad- targeting algorithms.In each case, the act of using the ser vice creates something of value, either improving the ser vice itself or creating information that can be usefulsomewhere else. Whether you know it or not, you’re paying with your labor for something free.PIRACY: Some artists give away their music online as a way of marketing concerts, merchandise, licensing, and other paid fare.
Cathleen Jem Caraig Special ReportS63 - Entrepreneurship
WHAT’S FREE: Any Product That Entices You to Pay for Something Else.FREE TO WHOM: Everyone Willing to Pay Eventually, One Way or Another.
WHAT’S FREE: Content, Services, Software, and More.FREE TO WHOM: Everyone.
WHAT’S FREE: Anything People Choose to Give Away with No Expectation of Payment.FREE TO WHOM: Everyone.
Gift Economy Craigslist, Wikipedia, Freecycle Labor Exchange • Using Google Search Piracy • Music: Digital reproduction, peer-to-peer distribution
WHAT’S FREE: Anything That’s Matched with a Premium Paid Version.FREE TO WHOM: Basic Users.
One of the most common web business models. Freemium = Free version Premium = “Pro” version has more features • Flickr vs Flickr Pro ($25/year)
A typical online site follows the 5 Percent Rule 5 Percent of users support all the rest FREEMIUM MODEL • For every user who pays for the premium version of the site, nineteen others get the basic free version. “The reason this works is that the cost of serving the nineteen is close enough to zero to call it nothing.”
Free: The Future of a Radical Price by Chris Anderson