Free vs. Paid Business Models: The Hidden Role of Engineers as Marketers

Nicolas Pujol
Nicolas PujolAuthor at Pujol Enterprises
Free vs. Paid Business Models: The Hidden Role of Engineers as Marketers
Nicolas Pujol
Investor, advisor, author of The Mind Share Market
Google: $160B


                    Skype: $8.5B




                Apple: $320B

                                        Facebook: $55B?


                                   $0
Before

Now

After
Non-monetary transactions
Gift economics

Barter exchange
井
Free vs. Paid Business Models: The Hidden Role of Engineers as Marketers
1




Reference: Federal Trade Commission Guide 251.1 on the use of the word “free” in commerce
Source: http://web.mit.edu/ariely/www/MIT/Papers/zero.pdf, expanded in The Mind Share Market
Classic marketing:                            Productive marketing:
 Ad is a message                              The product is the ad

   P=0                                             P=0



                           P>0
                     Commercial transaction
The opacity problem of market shares
By nature, new demand (P2=0; Q2=maximum value)
is not visible before: a) product release and b) awareness
Product 1:
            90% market share
            Priced at P1>0

          Product 2:
            10% market share
            Priced at P2>0




P1   P2
Commercial markets          Mind share markets

                                                   Product 3 appears, priced at
                                                   P3=0




P1                    P2                      P3




                           New commercial market
Downloadable software                     SaaS                        Higher education
                              (digitization of bricks and mortar)




        Telephony               Physical product trials             Healthcare? Insurance?




Productive marketing: Producing value to customers before a commercial transaction occurs
The product is the ad, and affordable to everyone
1. Two-sided platform: Different categories of users
        Ad-funded models, video games, shopping malls, credit cards

2. Freemium: Same category of users
        Sub-categories to upsell

(Semi-applicable: Tying)—“It’s free if you pay”



More info: Scholarly papers on www.SSRN.com (technical) or The Mind Share Market (illustrated)
Free vs. Paid Business Models: The Hidden Role of Engineers as Marketers
Conventional marketing   Productive marketing
Free vs. Paid Business Models: The Hidden Role of Engineers as Marketers
The subtractive future and what you can do
Price gaps will be filled
   Address pent-up demand, upfront



If customers want freedom…
   Strains don’t belong (nuances)
Maximizes market share and profit, even in the absence of competition
(Parker, Van Alstyne)



Will solve other problems
info@nicolaspujol.com
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Free vs. Paid Business Models: The Hidden Role of Engineers as Marketers