I recently read a book titled Free, The Future of a Radical Price. In it, the author, Chris Anderson, shares with us a series of anecdotes to get his point across how free can actually be profitable for companies that support it as a business model.
Let’s start with Monty Python. A few years ago, some of the existing members of the group Monty Python found that their video clips were being screened on YouTube. To counter this, Monty Python launched their own YouTube channel and started streaming high-quality video, also for free. What did they gain from this? Three months later sales of their DVDs had climbed to No. 2 on the Amazon movie list with revenue increasing 23,000 percent.
Chris event takes us back a couple generations to when Gillette handed out razor handles as a loss leader to sell blades to happy customers at a profit. In another example of clever marketing strategy, we find that Jell-O wasn’t always the popular dessert treat that it is today. It took some hard work and giving away tens of thousands of Jell-O cookbooks to gain market acceptance. If it weren’t for this marketing genius the Jell-O shots that we enjoyed in college may never have been.
Back to today. We find companies such as Google and Yahoo providing a valuable service but never sending us a bill; both companies basing their business models on advertising revenue. Chris also discusses how some companies may provide a free service as well as a premium service with more options. So long as some fraction of customers to pay for premium service, the company might sustain a profit. While he doesn’t mention it in the book, Evernote is one such company, their free service providing enough value that the founders are comfortable talking publicly about the percentage that sign up for their premium service.
There is also a lengthy discussion of recording artists who accept the fact that their music is pirated on the Internet but their gain in revenue and sales of concert tickets and older CDs makes up for this. I find this hypothesis interesting although I’m not personally comfortable declaring that the ends justifies the means. If a band wishes to choose to distribute their music freely, and make up for it elsewhere, that should be their decision and not a business model to force upon them. Still it’s an interesting discussion to observe how a product with no incremental costs can lead to a different marketing path. Before the price of hard drive memory came down so dramatically, it would make little sense to photocopy every page of a 300-page book. Today that book may very well be available online for the downloading. And the business model of free will struggle with the distinction between the bits and atoms.
Chris offers and interesting insight on this concept and this book deserves a space on your shelf right next to other recent books such as Blink, Freakonomics, and The Tipping Point.