Free vs. Paid

There is no question about it. If you are running an internet business then you are struggling to find the right  revenue model to apply. It is a very tough question since the decision you make will have long lasting impact in your business and growth strategy. The path you choose will deeply influence the company culture and the performance drivers through which people are measured.  It will shape how your competitors evolve around you and how potential investors see you.  Most importantly, it will shape your company’s vision, purpose and execution.

Reinvention, fascination and inspiration. Three words that kept coming up on a recent post by Fred Wilson. Fred was talking about Urban Architects and how they think and what drives them. But what caught my eye was not the glitzy applications they are building but the words they used to describe  their ideas and goals. Words that thrown into the wind mean nothing, but when they lead to resilient product development they have tremendous albeit unmeasured and unproved revenue opportunities.

Free can give a business the openness of mind that it needs to get to the next level. Paid can limit the evolution of that thinking.  One cannot but wonder how far can some companies go if they would think about the value of their service on a different way. Look at Mint for example. A company that took an established personal finance model and made it free and reinvented the revenue stream. It sold to Intuit for $170 Million.

Free is scary. From the early days of Linux and its validation through the birth of Red Hat. Free can also become an excuse that explains why a business is failing. For instance, Sun Microsystems arguably has the wrong combination of Free. As Seth Godin says in his wonderfully short and deep post about free, “I think it’s dangerous and often fatal to put free on top of an existing business model. Things fall apart.”

Free is not for every company but it can certainly be a tool that you can use to rethink your business and to find different revenue models that don’t involve locking your thinking and innovation around charging a few bucks a month for a service.

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  16. From my experiences, free services have an advantage in terms of scalability and outreach. But one problem I've encountered is that companies starting free without forecasting eventual revenue streams get into trouble when they're required to generate revenue. Such a change is tricky and many find themselves unable to be successful at doing it.

    Every business must be profitable to continue existing and so I think there should always be attention toward revenue generation….even at the onset when it's not needed. But sooner or not, it will be needed.

    1. Forecasting is a good idea but on the internet things change quickly so the forecast from my humble point of view needs to evolve (i.e. be rebuilt) according to market demand and how the service/product evolves overtime

  17. Great article. But don't forget, there is more to free than kostenlos. There is the freedom to act, speak, modify, etc. I think the Evernote business model is an interesting and relevant study of using free to drive a paid model. And look at people using Creative Commons protected content they have created. Huge space, and a sea of examples to draw from and modify to fit one's specific needs

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