The Web has undoubtedly changed the life of people for different aspects and has countless advantages that make it unique and inimitable, one in particular is the fact that for the users it is free. It may be because we are so used to using it now that we hardly notice that it is free and so immediate for anybody, but this is the main characteristic that the Internet possesses and it provides a new way of economising, or better the ideal model of the business of the future.
This is the opinion of the editor of the online magazine Wired, Chris Anderson, who claimed nine years ago, back in 2008, that the fact of making a service free for the users would be an important innovation within economy.
On the other hand, there is a great difference in the eyes of the consumer between a product that costs and one that it free: offering a product free means making it viral, ensuring that it can spread amongst people in a short time and that it is well-known; selling a product only for a few euros means immediately winning over a consumer base and convincing them of the validity of the product. It is another type of business that will always be thrown into turmoil by the web and by the power of what is free.
Indeed, according to Anderson, there are 5 different types of business based on the free model, some of which have been around for decades, let us analyse them:
CROSS-SUBSIDIES
In this first kind of free business, a single strategy is adopted: offering a free product to consumers, who are then “forced” to buy something else. This is the case of the inventor of the razor King Gillette, who adopted this technique in the early 1900’s. Gillette gave away their razor without the blades, thus useless in itself, in order to create a very high demand for blades, which it was necessary to pay a certain price for though.
This technique, used a century ago, is still used in several sectors: indeed, there are restaurants that give away lunch or dinner, but make you pay for drinks; or there is the low cost airline Ryanair that sells tickets on European flights at very low prices, but make money on the many pay services that other airlines include in the ticket price (like on-board meals).
ADVERTISING
Advertising is one of the best known and most widely used models for free business, which involves the participation of three parties: the seller, the consumer and the advertiser.
The model is simple: the seller gives a product to the consumer free of charge, like the service of radio programmes, that is free. So where does the seller earn? The earnings come from the third party, the advertiser, who pays the seller to insert advertising in the product given to the consumers. In this way, the seller has earnings from the advertiser and at the same time, it is as if they were not so much selling a product to the consumers, but selling the consumers to the advertiser, who, in turn, earns from the advertising.
The person offering free radio programmes to the consumers will, therefore, earn from the advertising that is broadcast between one song and another and the advertiser will earn thanks to the consumers, who, by hearing the advert, may purchase the sponsored product.
FREEMIUM
This term was coined by the capitalist Fred Wilson and refers to the business model typical of applications or websites with a free version and a premium pay version, the fusion of which gives rise to its name Freemium.
The model is based on the 1% rule. This means that amongst the users of a service, like Spotify for example, there are 99% who use the free version and only 1% who use the premium pay version.
It would seem a paradox that there are earnings, but there are, because the cost to serve 99% of the free users is so close to zero that it could be called “nothing”, while those paying for the premium version mean that the service makes a profit and greater attention is focussed on them.
EXCHANGE OF CONTRIBUTIONS
Content exchange is the business model that is mainly used by websites which are based specifically on the work of the website users. Yahoo Answer or TripAdvisor would not exist without the thousands of questions and answers or reviews that the users exchange and share on these websites. The users are, therefore, the basis of this model that is free for them, but that makes earnings for the sites in question, due to the countless clicks made by people every day.
GIFT ECONOMY
Finally there is gift economy, or the last model of free business according to Anderson. In this case reference is made to all those Open Source platforms, the ones where the source code is open and accessible to all, in order to ensure that anyone is potentially able to create or modify web content free of charge. The most famous example of all is that of Wikipedia, the most complete and famous encyclopaedia on the web, a no profit platform, whose purpose is to contain as much data as possible and disseminate it free of charge, thanks to the help of countless volunteers from all over the world who collaborate every day by creating content.
We are, therefore entering a new era, increasingly connected to the world of the web, in which the word “free” will be the key element to start from for developing new business models. And do you think that sooner or later it will be possible to live in a world where everything will be free?