This document discusses how to assess threats from new competitors offering free products or services. It provides guidelines for determining if a free entrant poses a minor, delayed, or immediate threat based on comparing the growth rate of the entrant's users to the defection rate of the established firm's paying customers. The document also outlines some strategies incumbent firms can use to offer a better free product, such as bundling it with paid offerings or charging third parties for access to users. It notes obstacles like profit expectations and accounting systems that may make these strategies difficult for incumbents.

1. COMPETING
AGAINST

2. Free offering from
NEW COMPETITOR

3. INCUMBENTS made the
wrong choice by introducing
their own free offering too
quickly, responded too slowly
or did nothing at all

4. HOW TO ASSESS FREE
ENTRANT THREAT

6. When both rates mentioned above are
high, the entrant represents a business
model threat

7. When the entrant’s users are
multiplying rapidly but the
established firm’s customers are
defecting slowly, the entrant
represents a delayed threat

8. When the defection rate among your
paying customers is high and the
growth rate of the entrant’s users is
low, the threat is immediate

9. When both rates are low, the threat is
minor

11. SOME STRATEGIES TO
OFFER BETTER FREE
PRODUCT

12. Sell other products that are not directly tied to the free product
Introduce a free basic offering to gain widespread use and then charge
for a premium version

13. CHARGE THIRD
PARTY
Provide a free product to users and then charge a third
party for access to them

14. BUNDLE
Offer a free product or service with a paid offering

15. Belief that products must generate a
respectable level of revenues and profits
on their own
Profit-center structure and Accounting
system
OBSTACLES

16. RECAP
 How to assess the threats posed by new entrant
 How to respond
 Some strategies to better free offer
 Obstacles

17. DISCLAIMER
These slides were created by Pratyush Das, as
part of an internship done under the guidance
of Prof. Sameer Mathur
(www.IIMInternship.com)"