Making the "Free" Business Model Work In a Tough Economy

Randy Savage writes "With venture capital on hold and advertising revenue down, the WSJ discusses where online business models might go. 'Over the past decade, we have built a country-sized economy online where the default price is zero — nothing, nada, zip. Digital goods — from music and video to Wikipedia — can be produced and distributed at virtually no marginal cost, and so, by the laws of economics, price has gone the same way, to $0.00. For the Google Generation, the Internet is the land of the free. '"

Comments

Volume

[AKAImBatman]

The business model is very simple: Give the product away and make it up in volume!

Joking aside, there has never been a better time for free products. As the strength of McDonalds and Walmart demonstrates, consumers are looking for the cheapest prices to help reduce their costs. Even consumers who are financially okay at the moment are reducing costs to prepare for any eventuality.

If you look at the market, you see a lot of giveaways that used to be unthinkable. McDonalds is doing "free latte mondays" to draw business away from Starbucks while Denny's is giving away a free Grand Slam breakfast to each visitor tomorrow in an attempt to push coupon books out to customers. (Thus encouraging them to think about the large and inexpensive breakfast they can get there.)

The key is that these businesses have solid revenue models that their giveaways promote. Web-based businesses are in a slightly tighter pickel. With advertising budgets getting slashed across the board, ad-supported websites are feeling the same pinch as print and broadcast media. Now is the time to find alternative revenue streams such as premium content to back their free services. Things like selling larger downloadable versions of free web games or state tax filings to go with free Federal filings.

These are potentially sustainable models in the Internet age. They preserve the free service concept and allow consumers to evaluate the product(s). Customers then have a difficult time not paying for Premium features or content with real value. The "real value" is the key, of course. Which is something the internet has been missing with its premium features. (Video Game DLC is particularly bad in this area.)

Re:Volume

[Lumpy]

The key is VOLUME and DIVERSITY.

I self publish several DVD's and Coffee Table books. My books and DVD's sell very slowly, each book or DVD sells maybe 1 copy a month. But I have 4 DVD's and 8 books out there. so I am shipping 12 items a month all the time. as I add in the next 2 DVD's that I have finished and the next book I will sell 15 items a month all the time month after month.

Unlike Traditional marketing and distribution I get about $20.00 per DVD sold and $10.00 per book sold. When I used to sell through a publisher I got $1.00 to $2.00 per book or DVD sold.

I can sell 10X less and make the same money. Plus I dont have to spend Thousands to woo publishers to carry my product, I can tell the publishers to suck it and do it myself. My profits are 10X from when I had a formal publisher and agent. I control costs, I control every aspect about my product and I reap the profits.

Do I sit in my villa drinking martinis all day? no. I order supplies, support the website and webstore, and place book and DVD replication orders. I "WORK" 1 hour a day doing that. The rest of the time I do my day job and then do my photography and Videography. I made enough money off it to upgrade my cameras and other gear yearly plus each year the profits increase as I add 2 DVD's and 2 Books to the pile of items that sell every month without fail.

New DVD's get a surge of 200 sales initially, and they taper off to the 1 a month unless I get a mention in a trade magazine, then they spike again.

I had an article about one of my products in Creative COW a year ago and my sales spiked hard, same as when I get a mention off a popular blog or podcast.

If I marketed myself and my product better , sales would be far more brisk.

Re:Volume

[iamthelaw]

A friend pointed out to me once that one way to think of this whole thing, to make it make a little more sense, is to put the business model on its side.

A company like Google, for example -- most people would say that you and I, as searchers, are Google's customers. Instead, let's say that Google's "customers" are the advertisers, and their "product" is users (or, more concretely, the users' attention). By delivering "products" to "customers", they make money.

So a site that makes no money -- an early-stage dot-com that doesn't advertise yet, what are they doing? They're building up a warehouse of product, in the hope that once they have enough products, they can sell them to customers at a good price.

micropayments

[TheSHAD0W]

This is exactly why the net needs a viable model for micropayments. And yes, I know, the abundance fan's response is that "money is obsolete, we don't need it any more"... People still want SOMETHING for their work, and while there have been all sorts of proposals, ranging from whuffie to all sorts of other trust metrics, micropayments would work just as well and would allow a tie-in to the remains of the real world economy.

Earth to businesses

[Yvan256]

Yes, free can beat not free. Can't argue with that.

You have to realise, however, that sometimes it's not the fact that it's free, it's the fact that's it's available at all.

Pirates don't care about international borders, different launch dates for different countries, how old the content is, etc, etc.

If you want to sell your content, don't build artificial borders that prevents us from buying it.

As an example: how long has the iTunes store been running? Why can't the labels tear sell their content to everyone on the planet? It's your own mess of contracts and licenses, figure it out for yourselves and leave us out of it.