My favourite bit was the quote "a free lunch doesn't necessarily mean the food is being given away or that you'll pay for it later — it could just mean someone else is picking up the tab."
Very true. Another Chris Anderson got it right with Ted.com, where I spent two hours last night going through presentations and others paid a pretty penny to see these live.
AnnBernard
· 1 year ago
I agree with the free model however, when people start saying they are willing to pay some money to have better customer service, less spam, more privacy and more functional features...perhaps those people are also worth listening too. You have free and then you have high end...where does that leave the person who wants a little more but can't afford the high end of complete exclusivity?
Andy Swan
· 1 year ago
I agree....I REALLY like the flickr model.....free, but micro-subscription for our biggest fans to get more out of it.
Seems like the baseline of every "digital" (bits and bytes) product should be free, since that's about the variable cost of producing it. No reason not to make some flow from super-users that are happy to pay.
Jamie
· 1 year ago
If it's not "advertising overload," then it could be "breach of privacy overload." Nothing is truly free. But, the point is still correct; It might be a viable business model.
jill
· 1 year ago
thanks for the link to the Wired article about the Free business model.
A bit off topic..but this just furthers my belief that Wholesale Shopping Communities like the one I am forming are going to succeed and change the way consumers shop in the future. check it out at: http://jillicious.typepad.com/virtualmom/2008/0...
My big concern is that large companies are using "free" for arbitrage and monopolistic tactics. It is one thing to say - here is a free version of Flickr upto X photos and then you pay, vs. here are free Google docs forever because we make a ton of money on ads elsewhere.
These two things are not equivalent, and the second one seems super unfair to me. You can not enter a market with a 0 price, you kill of all competition this way.
Second problem that I see is a whole new level of complexity added to the whole business equation. A transaction that previously involved 2 players (buyer, seller) now involves at least 3 - facilitator. Its fine, but it does sound complex. From Chris's free air travel example - man, talk about convoluted. Would you invest in the company with such complex way of deriving revenue?
Alex
Chris
· 1 year ago
Free doesn't need a defense. Free needs an increased understanding of the complexities surrounding it.
The larger the discussions & audiences around this topic, the better markets can and will develop to extend the paradigm.
The largest problem is people hear free and think 'ads'. Very soon there aren't going to be enough quality ads or CTR/CPM revenue to support all of the products/services/content ... so free w/o ads is going to be a critical operational imperative.
Companies are going to have to get free experience right quick or risk being rendered obsolete.
Charlie Crystle
· 1 year ago
Free healthcare. Supported by Google AdWords.
pwb
· 1 year ago
The reason you should offer FREE is because you *can*! The variable cost of providing an interent service is very near zero. If you don't, someone else will. And it's a perfectly reasonable way to acquire paying customers.
It's lame we are still conflicted about this. And please don't give me any of the "yes, but" or "it depends" crud.
pwb
· 1 year ago
This point cannot be overstated: "From the consumer's perspective, though, there is a huge difference between cheap and free. Give a product away and it can go viral. Charge a single cent for it and you're in an entirely different business"
fredwilson
· 1 year ago
I was thinking about adding that to my post about 20 mins after I wrote it but never got around to it. Free only works if your marginal cost is near zero. If that's true, you have to have a free offering. If its not true, you can't
Fred
blogcosm
· 1 year ago
I managed to trackback to your old post but not this one, so here goes a manual one. In addition to spreading the word about proper credit for Freemium, I mention an earlier Josh Kopelman post that deserves attention, plus suggest a book: Robert Rodin's "Free, Perfect, and Now".
JM
· 1 year ago
Mr. Wilson, how many, what percentage, and which ones of the companies you have invested in follow your philosophy of doing business based upon the "freemium" business model?
fredwilson
· 1 year ago
None use it as a primary business model but many use it as a part of their business model
fred
JM
· 1 year ago
So they use the "freemium" activities as part of their marketing strategy (i.e. rather than paying for advertising to promote their business product or service, they just offer part of their business product or service for free)?
jackson
· 1 year ago
Then let's apply the principal to health care and education.
Call me a commie, go ahead.......
fredwilson
· 1 year ago
We are sort of there with education. You can get a decent free education, at least I did through high school
It's supported by everyone, including those who opt out
I think that model has to be copied by health care
fred
Ivan Kirigin
· 1 year ago
There is plenty of room for growth in digital education and health care. The school system in particular is designed for an antiquated industrial age. Self diagnosis tools could certainly improve.
Don Jones - VentureDeal
· 1 year ago
Canada copied the decent free education until high school - simple, routine healthcare.
For more complicated, expensive procedures (College), Canadians come to the US...
Paul_Wallbank
· 1 year ago
Fred, your high school education wasn't free; it was paid for your grandparent's and parent's taxes.
This is the case with Canadian health care system as discussed in the comments below as well.
If anything, US retirees flocking North to take advantage of the largess of the Canadian taxpayer is a good example of how damaged the "freesphere" idea really is.
The whole business model depends on either another revenue stream or on the willingness of someone else be they investors or Canadian taxpayers.
Free webmail is a good example; Hotmail is subsidised by Microsoft's rivers of gold, Yahoo! is struggling to remain a stand alone entity and Google's share price today has slumped on fears the ad revenues that pay for all the free stuff may be threatened.
PS: Glad you and the Gotham Gal enjoyed Sydney, hope to see you again down under sometime soon.
RacerRick
· 1 year ago
No one else did, so I will. Jackson is a Commie.
joeter
· 1 year ago
For my economics senior seminar I wanted to build a model on this. I was trying to figure out more about the attention economy. I felt labor economics was the best place to start and used the basic labor-leisure trade off.
I made the assumption that users were a cost of input just like factory workers since in web 2.0 sites the users add a large portion of the value (or at least keep the site functional).
Y-axis: value of service (insert your marketing effort here) X-axis: trade off between ‘rent on privacy’ and ‘$ cost of service’ (i used a percent scale since I didn't fully figure out a way to have them expressed in the same unit)
The constraint I called the convenience rate, which then allowed for different indifference curves to be drawn tangent to it depending on user preferences.
The multiple business models on the web would fit in between the x-axis scale.
The model is basic and there’s a lot more I can flesh out, but that’s because it’s still in infancy; for a poor reason.
Unfortunately, my proposal was turned down. My professor told me to try another topic he knew more about – like sports betting.
fredwilson
· 1 year ago
You need a new professor!
Maybe you should teach the class
Jarid
· 1 year ago
Thanks for the shout out. I guess my name got lost in the long tail... ;)
fredwilson
· 1 year ago
It's never lost on me
I linked to your linkedin page
Had no idea you worked at urban fetch.
You were consorting with the enemy at one time in my life!
fred
Jarid
· 1 year ago
Ah, 1999. Good times. I'm sure we've got some good stories we could swap. Maybe we should write a book, and give it away for free...
fredwilson
· 1 year ago
And charge for the version with videos of the messengers hanging around the programmers
Fred
ModusMarketing
· 1 year ago
Interesting article! My company is in business of giving away free Word-Processor/PDF writer software as a webmarketing research. And so far it's what we expected: Internauts like FREE. http://www.SmartWriterPro.com/
Sean Ellis
· 1 year ago
My favorite thing about the model is its defensibility. By building your business from the ground up to compete with a free version of your product, you have a much stronger business (you face freemium downsell pressure from day 1). Imagine the premium only guy that suddenly faces competition from a new freemium startup. I play out this scenario in my most recent blog post:
All Comments
My favourite bit was the quote "a free lunch doesn't necessarily mean the food is being given away or that you'll pay for it later — it could just mean someone else is picking up the tab."
Very true. Another Chris Anderson got it right with Ted.com, where I spent two hours last night going through presentations and others paid a pretty penny to see these live.
Seems like the baseline of every "digital" (bits and bytes) product should be free, since that's about the variable cost of producing it. No reason not to make some flow from super-users that are happy to pay.
A bit off topic..but this just furthers my belief that Wholesale Shopping Communities like the one I am forming are going to succeed and change the way consumers shop in the future.
check it out at:
http://jillicious.typepad.com/virtualmom/2008/0...
See how I came to this idea:
http://jillicious.typepad.com/virtualmom/2008/0...
My big concern is that large companies are using "free" for arbitrage and monopolistic tactics. It is one thing to say - here is a free version of Flickr upto X photos and then you pay, vs. here are free Google docs forever because we make a ton of money on ads elsewhere.
These two things are not equivalent, and the second one seems super unfair to me. You can not enter a market with a 0 price, you kill of all competition this way.
Second problem that I see is a whole new level of complexity added to the whole business equation. A transaction that previously involved 2 players (buyer, seller) now involves at least 3 - facilitator. Its fine, but it does sound complex. From Chris's free air travel example - man, talk about convoluted. Would you invest in the company with such complex way of deriving revenue?
Alex
The larger the discussions & audiences around this topic, the better markets can and will develop to extend the paradigm.
The largest problem is people hear free and think 'ads'. Very soon there aren't going to be enough quality ads or CTR/CPM revenue to support all of the products/services/content ... so free w/o ads is going to be a critical operational imperative.
Companies are going to have to get free experience right quick or risk being rendered obsolete.
It's lame we are still conflicted about this. And please don't give me any of the "yes, but" or "it depends" crud.
Fred
business model
fred
Call me a commie, go ahead.......
least I did through high school
It's supported by everyone, including those who opt out
I think that model has to be copied by health care
fred
For more complicated, expensive procedures (College), Canadians come to the US...
This is the case with Canadian health care system as discussed in the comments below as well.
If anything, US retirees flocking North to take advantage of the largess of the Canadian taxpayer is a good example of how damaged the "freesphere" idea really is.
The whole business model depends on either another revenue stream or on the willingness of someone else be they investors or Canadian taxpayers.
Free webmail is a good example; Hotmail is subsidised by Microsoft's rivers of gold, Yahoo! is struggling to remain a stand alone entity and Google's share price today has slumped on fears the ad revenues that pay for all the free stuff may be threatened.
I've a few more thoughts about this on my blog at http://workingtech.blogspot.com/2008/02/curse-o...
PS: Glad you and the Gotham Gal enjoyed Sydney, hope to see you again down under sometime soon.
I made the assumption that users were a cost of input just like factory workers since in web 2.0 sites the users add a large portion of the value (or at least keep the site functional).
Y-axis: value of service (insert your marketing effort here)
X-axis: trade off between ‘rent on privacy’ and ‘$ cost of service’ (i used a percent scale since I didn't fully figure out a way to have them expressed in the same unit)
The constraint I called the convenience rate, which then allowed for different indifference curves to be drawn tangent to it depending on user preferences.
The multiple business models on the web would fit in between the x-axis scale.
The model is basic and there’s a lot more I can flesh out, but that’s because it’s still in infancy; for a poor reason.
Unfortunately, my proposal was turned down. My professor told me to try another topic he knew more about – like sports betting.
Maybe you should teach the class
I linked to your linkedin page
Had no idea you worked at urban fetch.
You were consorting with the enemy at one time in my life!
fred
Fred
http://startup-marketing.com/2008/03/10/fremium...