Business Model 101
Give your service away for free, The Freemium– 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. Yea, that sounds great, sign us up!
Skype – basic in network voice is free, out of network calling is a premium service
Flickr – a handful of pictures a month is free, heavy users convert to Pro
WordPress – the basic service is free, but there is paid version that is more customizable.
Newsgator – the web reader is free. If you want to synch with outlook and your mobile phone, that’s a paid service
Box.net – you get 1gb of virtual storage for free, but you have to pay for more than that
Webroot – you can get a free spyware scan, but for full protection you will have to pay
This business model has been around for a long time. Shareware always used a model like this and there are many successful software companies that have been built with this model.
It works even better with web native services. A customer is only a click away and if you can convert them without forcing them into a price/value decision you can build a customer base fairly rapidly and efficiently. It is important that you require as little as possible in the initial customer acquisition process. Asking for a credit card even though you won’t charge anything to it is not a good idea. Even forced registration is a bad idea. You’ll want to do some of this sort of thing once you’ve acquired the customer but not in the initial interaction.
Don’t require any downloads to start. ‘CHECK’- Don’t require plugins. ‘CHECK’ Support every browser with any material market share. Make sure your service works on various flavors of Windows, OSX, IE and Linux. In short, eliminate all barriers to the initial customer acquisition.
And make sure that whatever the customer gets day one for free, they are always going to get for free. ‘CHECK’ Nothing is more irritating to a potential customer than a “bait and switch”. ‘Agreed’
The best examples of this business model are when the customer implicitly understands why the paid service has to cost money. More costs for deploying marketing networks, promoting cross selling, up selling and virtual storage are good examples. Termination costs on other carriers networks in the Skype model are another. When it is just additional features that don’t carry an incremental cost to offer, it may be harder to convert free users to paid users. But if your free service is loved and you do a good job articulating the value that comes with the paid service, you can convert to paying users with good results. We believe that if we can provide a suite of services within your biztag dashboard, like CRM, Survey, Analytics and email collection and organization for defined target marketing and email blasts, well then we are saving you a lot of time and energy you could be using creativity to take your business model to the next level.
I would like to have a name for this business model. We’ve got words like subscription, ad supported, license, and ASP, that are well understood. Do we have a word for this business model? If so, I don’t know it.
If you have any thoughful suggestion about a business model that works, taking in account the explosion of mobile, then let it be heard, show readers who’s BOSS!