How Can a 'Free' Business Model Work?

By Janet Driscoll Miller | Oct 12, 2009
More Articles by Janet

I just finished Chris Anderson‘s new book, Free: The Future of a Radical Price, and I was honestly a bit underwhelmed by it. Overall, I do think Anderson’s theories, including The Long Tail, have some merit, but the theories aren’t 100% reliable.What sort of business can survive by offering all of its products for free all of the time? Is that really a viable business model?

Anderson himself even alludes that free cannot be the only option in concluding the book with: “Web entrepreneurs have to invent not just products that people love but also those that they will pay for. Free may be the best price, but it can’t be the only one.”

Free by Chris Anderson / CC BY 2.0

However, I did think that one of the best parts of Anderson’s new book is an appendix: Fifty Business Models Build on Free. While Free may not work for every business, in today’s digital world, free, in some manner, may need to be a major component in pricing and marketing strategy. While that’s not a new concept (free trials have been around forever), it can be difficult to creatively determine a way to work a free model into your business model. This list provides a starting point for that.

Some ideas from the list include:

  • Give away services, sell products (or vice versa)
  • Give away software, sell hardware
  • Give away the show, sell the drinks
  • or Give away the drinks, sell the show
  • Free with purchase (loss leaders)
  • Give away content to readers, charge for API use
  • Give away web content, charge for printed content
  • Free shipping for orders over a certain amount
  • Free trials
  • Give away free basic version, charge for the premium version

Anderson also reviews the “freemium” model — a model often embraced by Software-As-A-Service (SaaS) companies. Because the cost of digital hard drive space is so minimal, freemium models (offer a free version and a paid, premium version) tend to be popular because the freemium model can draw users in faster and entice them to “upgrade” to a paid, premium version. SEOMoz’s Pro Version is a great example of the “freemium” premium version.

Overall, Anderson’s book was a good read, but I preferred Dan Ariely’s book, Predictably Irrational, which Anderson quotes in Free, much better. Ariely has more concrete examples of the power of pricing and the affect of free on the human psyche, which made it more meaningful for me.

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