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The Economics of Free in Online Businesses
Robbie Kellman Baxter
Grandma says GIVING product away is risky business
But FREE seems to be everywhere
FREE feels ubiquitous on consumer side
B2B is thinking about FREE too
Three kinds of FREE
limited by solution attributes
limited by duration
focus on ancillary audience
Benefits of FREE
Risks of FREE
FREE is a tactic; Profitability is the goal
Sources of Revenue
Subscription
A la carte services
Ancillary products
Partnership streams
Aggregated analytics
Advertising
CASE STUDY: Market Research Tools
Market Research Tools
Primary Customer? Market researchers
Secondary Customer? Consumers
Free or Freemium? Freemium offering for individual marketers
Benefits of Free? Virality, Conversion, Awareness
Limitations of Free? Features, Reach,
Revenue Streams? Subscription, a la carte
Additional Learnings? Need to understand early how free fits model
CASE STUDY: Video and voice services
Video and voice services
Primary Customer Consumer and business users
Secondary Customer
Managers
Free or Freemium? Freemium as primary service offering; Free trial for admin
Benefits of Free? Networked effect; Awareness, Trial
Limitations of Free? No administrative services, must be online, no forwarding
Revenue Streams Subscription, a la carte, credits,
Additional Learnings Consumers and business users are the same people
CASE STUDY: Restaurant reservation system
Video and voice services
Primary Customer Restaurants
Secondary Customer
Diners
Free or Freemium? Beemium
Benefits of Free? Networked effect (on both sides)
Limitations of Free? Free offering is ancillary
Revenue Streams Subscription, product, services
Additional Learnings Careful planning may create new sources of value
CASE STUDY: Digital News
Digital content creation services
Primary Customer Newspaper readers
Secondary Customer
Publishers
Free or Freemium? Freemium, Free Trial
Benefits of Free? Networked effect, awareness, trial, virality
Limitations of Free? Volume of free, duration, depth
Revenue Streams Subscription, platform, issues
Additional Learnings Challenges when variable costs are not zero
Does free make sense for you?
THANK YOU!
www.peninsulastrategies.com650-322-5655
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