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The latest cover story in WIRED, called Free! Why $0.00 Is the Future of Business (authored by Editor Chris Anderson of The Long Tail fame) has sparked a long list of blog posts on every aspect of ‘free’. I’d like to list some of my favorite ways of offering something to the market for free. Of course, lots of start-ups are focused on selling advertising directly or through Adsense, but there are other options to consider. The list isn’t complete of course, so please feel free to comment with other ideas!
Offer products for free and extract data from its use to sell
The best example I think is Newsgator. Newsgator offers several RSS readers and services (Newsgator, NetNewsWire, FeedDemon) and used to charge for them – they had actual revenue by charging for their products! Recently however, Newsgator decided to offer all readers for free. That way they gather a lot more data, which they will aggregate and offer as ‘attiontion data’ to publishers, journalists and other people interested in buzz. A risky way of transforming a business, but also one that could inspire a lot of other start-ups to rethink their sources of income.
If you want to learn more about this concept you should head over to the podcast section of Educators Corner by the Stanford Technology Ventures Program, where Mitch Kapor talks about his new start-up Foxmarks. Foxmarks enables users to synchronise different lists of bookmarks for free and plans to develop business cases on top of the many millions of bookmarks they aggregate through their product.
Offer the main product for free, charge for complementary products
This is the main thinking behind some of the recent acquisitions of open source products like MySQL. When you offer a product for free (MySQL), if you’re lucky, you’ll see a growing demand in your complementary products (like the servers that SUN offers).
Google is another great example: they need more pages to plave relevant ads on, so news, e-mail, search results, book pages, product search are great ways to serve more pages to more people and thus having more space to put ads on. For an excellent article on this, head over to Strategy+Business for The Google Enigma by Nicholas G. Carr.
Free for consumers, businesses will be charged
Your free product might enjoy great user numbers and then one day a company comes by with more sophisticated needs. Great! You’ve developed a product with value to users, and with value to companies. This means you have found a means to grow revenue without the need of plastering your free product with ads. So based on what do you charge businesses? You’ll notice businesses will have other needs. They might require more security, a more robust backup or options to export their data. Or they might want your product to be implemented in existing systems, or need other customizations. Offer some options for free to get the companies coming, charge for other options to make a business, and you have a great way of generating and growing revenue.
Of course the line between consumers and businesses won’t always be exactly clear. My advice: when in doubt treat them as consumers. Don’t charge unless you’re sure they’re representing a company by expressing additional needs, otherwise keep your product free for them.
Single users for free, multi users will be charged
It looks a lot like the business edition, but that one can be expanded to multi user accounts in general. Only this time, don’t focus on business needs but on multi user needs. When you have a product which provides value to single users but has more value when used by more users within one account, you might consider charging for the options that enable your product to go multi user.
One quick word of advice: be careful with this option. If you decide to offer the multi user options only when your customers pay for them, you might be cutting away one or several potential ways of your product to ‘go viral’. You should be aware that offering multi user options that make your product more valuable for every single user could mean you might have a potential great way to grow your user base at your hands. If these options happen to have a viral effect and might be able to drive more users to your product, you should think twice before locking them up in an account that you charge for.
Charge for one product, develop others for PR value
This one requires that you already have a product that people want to pay for or that you have other ways of extracting value out of it. Since you’re already making money, all you need to do is reach out to more potential users. Of course you can pour money into some Adwords/Adsense, but it might be worthwhile to think of a more sustainable and creative way to make your business known. One way is to come up with new services.
If offered for free they might attract an interesting new base of users and enhance your reputation. A great example are the platforms that companies like Facebook and Salesforce offer to other developers. These examples also serve other purposes since they’re closely tied to the main products of these companies, but they’re also great ways to drive more people to their respective main products.
Another example are companies offering consumer sites as a showcase of their technology. The source of revenue will be implementing the same technology within companies or within other web projects, so their own site is a creative way to connect with potential customers.
One piece of advice when developing your business model
Especially when you target consumers, never ever charge for something that enhances the main experience of your product! I meet many start-ups that want to offer for instance a platform to put information on (i.e. reviews, listings) but want to charge for uploading pictures, video, the option to insert a longer version of their story, widgets of their own information etc. That’s almost always wrong: what you’re doing is crippling the experience and telling them not to go all the way in using your product. Figure out another way to generate revenue, but don’t limit the potential great experience your users can have when using your product.
Jeroen Bakker is cofounder and CEO of the web development and e-learning company, Paragin. He’s also a cofounder of Infovester, which aims to help professionals cope with information overload by harvesting, indexing and filtering the information they need in their daily job. He has written for The Next Web, a blog and a conference put together by Web2.0 entrepreneurs in Europe. He’s also involved with Remindo.