In this guest post, Sam Schuurman (a.k.a @SocialSammy) – founder of iThnk.com and co-founder of TEDxDunedin – shares some insights on the concept of ‘Free’ in business. Since PocketSmith is freemium (anyone can create a free account from the site), we’ve always been interested in getting different perspective on our business model.
When talking about free there’s clichés aplenty…“there’s no such thing as a free lunch”, “there’s free as in speech and there is free as in beer” etc. The funny thing about clichés is that there’s often a kernel of truth to them.
There’s No Such Thing As A Free Lunch.
You might be thinking…I’ve snuck into a couple of free lunches in my time and got away with it pretty much scot-free, are you sure there’s no such thing as a free lunch???
Well yes, but I’m not gunna argue with you, you can take it up with Chris Anderson. In his latest book Free! Why $0.00 Is the Future of Business (download the free audiobook here) he acknowledges that even when the consumer is paying $0.00, somebody is still paying for it in some way, shape or form.
Who pays when its “Free Forever”…free forever could be more appropriately re-labelled as “subsidized”. With zero cost to the consumer, the cost is usually passed onto an advertiser or future acquirer. In some cases this can create a conflict of interest and almost always results in an indirect cost to the consumer.
Who pays under a “Freemium Model”…“Freemium” basically describes giving away a free version of a product with the hopes that a number of free users will love it enough to upgrade to the “premium” version. Simply put, the minority who love/need the service enough to upgrade to the premium version pay for the free users. Countless online businesses use this model simply because the marginal cost for hosting each free users is almost $0.00 – long live the longtail.
Who pays when there is absolute “Freedom To Pay”….also known as the donation model. This is where the generous consumers who actually uses the donate button funds the service for the huge majority who take the free version and run. In the case of free wordpress plugins this model sometimes leads to underpaid developers, poor plugin maintenance which ultimately costs the blogger in both time and energy.
Who pays for “Open Source”…loads of different people, in the case of the Mozilla Foundation, Google forks out for over 85% of their revenue. In the case of Linux there are a number of large organisations (e.g. IBM & Intel) that dedicate the time of their developers to making and submitting changes – don’t believe me then check this chart. Both Firefox and Linux also also sell T-shirts, mugs and other fan gear which gives the consumer the ability to (financially) support the cause. There is often also an additional cost to the consumer, this is the time cost associated with the additional hours dealing with bugs.
Um duh’…there are pros & cons for each form of free…when choosing between similar types of software each using a different free model you’re clearly making a trade off between the various pros and the sometimes not so obvious cons of each.
Free Beer vs Feer Speech
Free beer is supposedly the bait that is used to hook a consumer. Free speech is supposedly free with no strings attached. To some extent the same is true for the online world.
Free software is somewhat like free beer, as indicated above, someone is always paying. However, speech is now freer than ever. We can now publish what ever we want whenever we want. Your newly empowered consumer voice now gives you (along with everyone else) the ability to air your concerns, wants, needs, dreams and desires to the world.
Who Wins In The World of Free?
The real winner in the world of free is the 
uber-smart consumer who will take advantage of one or multiple forms of “free“. A truly savvy consumer will also maximise their bliss by using the web to supercharge their Free Speech and get more of what they want.
On the flip side of this it’s the companies who attempt some sort of free (as in $0.00) and are open, responsive and even encourage the free speech of thier consumers that will really excel in the world of free – Phil Osborne would call this Free/Style Business (video here).
If you’re interested; this is a great post about 3 variations of free from OnStartUps.com, and this is a great Trendwatching briefing about FreeLove – enjoy
