Friday, July 10, 2009

50 Business Models Built on Free

In his latest book Free: The Future of a Radical Price Chris Anderson lists fifty examples on free business models organized into three groups, Direct Cross-Subsidies, Two-sided markets, and Freemium. Below you have the list for free, that I hope Chris doesn't mind. Buy the book to get examples for each + the rest of the book (Freemium):

Free 1: Direct Cross-Subsidies - Any product that entices you to pay for something else
  • Give away services, sell products
  • Give away products, sell services
  • Give away software, sell hardware
  • Give away hardware, sell software
  • Give away cell phones, sell minutes of talk time
  • Give away talk time, sell cell phones
  • Give away the show, sell the drinks
  • Give away the drinks, sell the show
  • Free with purchase
  • Buy one, get one free
  • Free gift inside
  • Free shipping for orders over $25
  • Free samples
  • Free trials
  • Free parking
  • Free condiments
Free 2: Three-party markets - A third party pays to participate in a market created by a free exchange between the first two parties
  • Give away content, sell access to the audience
  • Give away credit cards without a fee, charge merchants a transaction fee
  • Give away scientific articles, charge authors to publish them
  • Give away document readers, sell document writers
  • Give woman free admission, charge men
  • Give children free admission, charge adults
  • Give away listings, sell premium search
  • Sell listings, give away search
  • Give away travel services, get a cut of rental car and hotel reservations
  • Charge sellers to be stocked in a store, let people shop for free
  • Charge buyers to shop in a store, stock seller merchandise for free
  • Give away house listings, sell mortgages
  • Give away content, sell information about the consumers
  • Give away content, make money by referring people to retailers
  • Give away content, sell stuff
  • Give away content, charge advertisers to be featured in it
  • Give away resume listings, charge for power search
  • Give away content and data to consumers, charge companies to access it through an API
  • Give away "green" house plans, charge builders and contractors to be listed as green resources
Free 3: Freemium - Anything that is matched with a Premium Paid Version
  • Give away basic information, sell richer information in easier-to-use form
  • Give away generic management advice, sell customized management advice
  • Give away federal tax software, sell state
  • Give away low-quality MP3s, sell high-quality box sets
  • Give away Web content, sell printed content
  • Give away online games, charge a subscription to do more in the game
  • Give away business directory listings, charge businesses to "claim" and enhance their own listings
  • Give away demo software, charge for the full version
  • Give away computer-to-computer calls, sell computer-to-phone calls
  • Give away free photo-sharing services, charge for additional storage space
  • Give away basic software, sell more features
  • Give away ad-supported service, sell the ability to remove the ads
  • Give away "snippets" sell books
  • Give away virtual tourism, sell virtual land
  • Give away a music game, sell music tracks
Free 4: In the book Chris also mentions a fourth type of Free that is not listed as it is not considered a business model: Nonmonetary Markets. An example that comes to my mind is to spend nights writing a blog without advertising to build a reputation, continuously develop ideas and concepts, keep yourself updated in a field, get feedback, and get into contact with smart individuals...

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External reading:

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  1. I am right in this internal debate with myself at the moment about how to go to market with a B2B sales channel tool for technology vendors.
    Not only do I favor greatly the Freemium model but I also have the dilemma of overlaying the API model you describe in another article.
    So here I have a Web 2.0 application that collects and aggregates channel sales metrics which I want to give away for free and charge for the premium services like reports, etc. Second I want to sell the API to third party vendors to apply BI analytics for customers who want to use the collected data to maybe forecast the future.
    It is a convoluted model that is essential to be in place before the public launch because we only have one chance at capturing this type of customer.
    I am half way through Chris Anderson's 'FREE' book at the moment. It's a great read but I wish I could find a case study around my situation. Any thoughts?

  2. Thank you for your comment Richard! I don't know of any case study around your situation but I guess several businesses using APIs are facing similar challenges.

    I would try to separate the different business models and work with them one at the time, what can you offer API-users, what would they be willing to pay for, what is their ideal situation, etc. Then do the same for Premium users buying reports, aggregated data etc. Finally I would look for synergies or constrains with the different models, what actions would benefit both models? what harms one of the models? if you create competitors generating reports on the same data as you provide in premium services etc.

    Would be interesting to hear how it goes. Perhaps you will be the one putting together the case study for others?

  3. Great list of free business models, thanks Anders! And I see I'm already doing Free 4, too :-)

  4. Hi Anders,

    Is there any quantitative work you can point to that allows you to predict how much quality difference is required to sustain a financial difference between Free and Premium e.g. Spotify isn't worth paying for Premium because the Free is so good.


  5. Hi Matt,

    Thank you for your comment! I couldn't tell from your blog if you are the Matt Reed that I've met in relation to CIP Forum and ICM activities? I don’t know any quantitative work that you ask for and I don’t see how this could be obtained, if you have ideas please let me know – I can see from your blog that it is in your field of expertise!

    What to include in a basic version and what to include in a premium version is of course very dependent on the type of service that you provide and what some users perceive as valuable. As a concrete example I pay for Spotify Premium, to get a version free from advertising, to have in my iphone, to get improved sound quality, and to support a Swedish company that I like. Most people that I know of do not pay for Spotify which is the greatness of the freemium model.

    If you want spreadsheets to do some business modeling Andrew Chen has put together a file and blog post on the key factors that drive freemium profitability:

    Take care,