You can order 250 full-color business cards from VistaPrint for free—something that would have cost hundreds of dollars just a few years ago.
Want to build a custom music library with an array of channels to fit your every mood? Sign up on Pandora. Also free…and with more variety than your CD collection will ever attain.
Want to read Chris Anderson’s landmark book Free: The Future of a Radical Price? Get the full electronic version completely free at Scribd.com.
What’s going on here?
It’s the radicalizing of the terms of engagement between company and customer where customers expect more and more for less…a lot less…preferably free. And businesses are responding.
Take for example office computing. In the recent past, you’d need to shell out at least a thousand bucks for a laptop and another thousand bucks for Microsoft Office and a few Adobe graphics programs. Well, today, you can buy a $199 netbook computer and use a host of free Google applications that do 80 – 90% of what your Office and Adobe programs do, from spreadsheets to photo re-touching.
This commoditization of nearly everything is driving prices toward zero…and it has cost many industries dearly. Experts estimate that Craigslist, with its millions of free classified ads, has single-handedly sucked three hundred million dollars out of the newspaper business—resulting in the closure of many of them— and even drained revenue from online auto listing sites like Vehix.com and Cars.com.
What’s at work here is the freemium model: giving a lower-level service or product away for free while offering an upgraded, more robustly featured version for a fee, often a relatively small one.
A great example is TeamPages.com, a sports team organizing website that is free with basic services, but costs $50/year for upgraded version and $70/year for an ad-free full-function edition.
The goal is to get people used to integrating the website’s services into their daily lives and then convincing them that the upgrade version is an even greater life-enhancing option, well worth the small fee being charged. If nothing else, TeamPages can sell ads and now owns a killer direct marketing database.
So how can your company leverage freemium, and what are the payoffs?
First the payoffs. Freeemium offerings can be exchanged for essentially three things:
Customer Data
In exchange for free goods or services, customers “pay” with information about themselves. Everything from scholarly white papers to samples of beef jerkey are given away under this freemium model.
Customer Attention
If a company can give away something free that customers use on a regular basis, then a relationship of dependency is born. Facebook has 300 million of these relationships and can sell that community’s attention to advertisers for an increasingly higher price.
Customer Relationships
Once a customer relationship has been established and reinforced through hundreds of online interactions, a certain level of trust emerges, and the company’s ability to sell something to the loyal customers is much greater than a cold-call with a banner ad or a direct marketing piece.
Freemium is, of course, a gamble. You are betting that the investment required to give stuff away will eventually be exceeded by the return of customer loyalty, paid in the three currencies of data, attention and relationships.
In slow economic times, freemium models can be used to keep employees…well, employed…developing new capabilities, while reaching out to new prospects who will become paying customers down the road. And as any good businessperson knows, the give-to-get model is often the key to building trust and validating expertise on the ultimate path to a profitable lifetime business relationship.