01 Sep What Would Happen If You Made Your Products Free?!
“I’ll tell you what brilliance in advertising is: 99 cents.”
This observation from an episode of the TV drama “Mad Men” points at some relevant truths. There was a time when 99 cents didn’t exist. In turn, there was a point when people thought that selling something for 99 cents would make little difference as opposed to selling something for one dollar. Most of us weren’t present at the advent of this ingenious pricing strategy, but we’ve all been here for the natural evolution of 99 cent pricing: free. Giving away a product or service for free, aka offering a “freemium,” is now a hallmark of modern software companies. Take a close look at the previous sentence. The 21st century has for-profit companies selling their goods for $0.00. This might be one the worst sounding ideas in the history of marketing. How is a company supposed to make money off a free product? Can it even be done? The pioneers of freemium thought so and succeeded, securing them a spot in the Breaker Hall of Fame.
Freemium is a business model that offers a baseline product or service for free. This pricing structure, or lack of one, works incredibly well for digital media like games and web applications since there is virtually no manufacturing cost. The advantageous nature of digital data is that it can be replicated with no monetary charge. This model probably wouldn’t work for a car company, but then again, no one thought it would work at all. What the software companies realized is that “free” is the greatest competitive and marketing tactic a company could use. Who can compete with free?
This business model isn’t new. Free for a limited time or light versions were used prominently in the ’80s. Demos for computer games were also a popular form of free software in order to promote a paid-for full version.
So why are we just hearing about it now? Because the internet “happened” and the popularity of apps changed software consumption and production. The open nature and relatively low barriers to entry that online connectivity and mobile devices allow created a saturated market. This forced the hand of developers as they rushed to make sure their products stood out among the millions of others.
Giving away products – free! – was the innovative solution to this saturation. It didn’t happen overnight, though. The term “freemium” was coined and the model popularized in a 2006 blog post, “My Favorite Business Model,” by venture capitalist Fred Wilson. He had this to say about the unconventional business model:
“Give your service away for free, possibly ad supported but maybe not,
acquire a lot of customers very efficiently through word of mouth,
referral networks, organic search marketing, etc, then offer premium
priced value added services or an enhanced version of your service to
your customer base.”
You might think that while it’s obvious that this model works for software companies, it would never work for other industries. While I won’t argue that freemium would work for every business, I will warn you about that kind of thinking. First of all, hindsight is 20/20. Second, you must keep in mind that it wasn’t too long ago that this pricing structure didn’t exist in the form we see today. Someone had to take the first leap of faith before such a seemingly ridiculous idea could become profitable. These leaders asked a simple, but valuable question: “What would happen if we made our product free?”