Free | Chris Anderson

Summary of: Free: The Future of a Radical Price
By: Chris Anderson

Introduction

Welcome to the fascinating world of free, where businesses like Google have transformed their revenue models by offering their products and services at no cost. In the summary of ‘Free: The Future of a Radical Price’ by Chris Anderson, you’ll discover how companies have not only survived but thrived using this paradigm-shifting approach. Learn about various revenue models, from selling virtual items to subscriptions and advertisements, and how the internet has enabled new forms of commerce that transcend traditional boundaries between the digital and physical realms.

Google’s “Free” Business Model

Google’s business model of giving away most of its products and services for free has made it a $20 billion firm that’s more profitable than all U.S. car firms and airlines combined. Instead of charging for products, Google earns massive advertising revenues from its core products, especially the search engine. This business model has been developed through three phases since 1999, allowing Google to reach the biggest possible market and achieve mass adoption. Google’s free-web services make users more inclined to spend more time online, allowing the company to parse user information for enhancing ad sales and developing new internet products.

Google has become a household name, and many of its products and services are readily available online. Surprisingly, almost all of its products are free of charge, and this has made Google more profitable than all U.S. car firms and airlines combined. Many people find it hard to believe that giving away products makes economic sense, but it works for Google.

Primarily, Google earns massive advertising revenues from its core products, especially the search engine, where companies pay to place ads next to relevant search results. The revenue potential is tremendous, and thousands of companies are trying to emulate Google’s free-service business model.

Google developed this business model in three phases. From 1999 to 2001, it built a better search system. From 2001 to 2003, it offered advertisers an innovative self-service method for aligning their ads with specific keywords or contents while getting them to outbid each other for the best ad positions. Since 2003, Google has developed and provided numerous free services to increase its online reach and cement users’ loyalty, selling accompanying ads where feasible.

Google’s CEO, Eric Schmidt, said that businesses can profit more from giving things away than they can by charging for them. By offering free services, Google can reach the biggest possible market and achieve mass adoption. Every time a blogger posts something online, Google’s web crawler indexes it, thus increasing the value of its search results. Every time an online user clicks Google Maps, the company’s database of consumer behavior becomes slightly more comprehensive. Google’s free-web services make users more inclined to spend more time online, allowing the company to parse user information for enhancing ad sales and developing new internet products.

In conclusion, Google’s business model of giving away free products has become synonymous with its success. It has made Google more profitable than U.S. car firms and airlines combined and has been developed through three phases since 1999. By offering free services, Google can reach the biggest possible market, achieve mass adoption, and parse user information to enhance ad sales and develop new internet products.

The Free Business Model in Online Gaming

The online gaming industry is worth billions of dollars, and many companies use a free business model to make money. Virtual items, subscriptions, advertising, real estate, and merchandise are all ways that online gaming firms generate revenue. Maple Story sells virtual items to enhance the gaming experience, while Club Penguin charges a monthly subscription fee for access to more features. Paid ads in virtual gaming environments are becoming increasingly common, and virtual land leases have made some Second Life users millionaires. Finally, the online/offline model, used by companies like Lego and Mattel for their free Web games, has also proven successful. As more industries turn to this partially free business model, it seems that “free has become the de facto price regardless of every effort to stop it.”

Innovative Pricing Strategies

This book excerpt showcases how companies are using creative pricing strategies to attract customers and boost profits.

Companies are always on the lookout for strategies that will help them stand out from their competitors. One area where they are particularly innovative is pricing. Several companies have adopted free or almost free pricing models to incentivize customers to use their products or services. For example, Ryanair, the Dublin-based airline, sells tickets from London to Barcelona for as low as $20, but recovers the actual cost of $70 by charging extra fees for services such as checking bags. Comcast, the US cable company, gives digital video recorders for free to its customers but recoups the cost through installation and monthly fees and hopes to upsell other more profitable services. Even a Portuguese media company, Controlinveste, gave away 60-piece silverware sets to boost the sale of its newspapers. One utensil was bundled in each day’s edition, and customers had to buy 60 different issues to get the entire set, creating a sense of excitement and exclusivity. These innovative strategies are not only limited to the digital space but are equally effective offline and provide companies with a creative way to attract customers, increase customer loyalty, and boost their profits.

The Power of Free

The business of free and how it works.

The idea of “free” is a powerful tool in business. However, what appears to be free may not always be the case. For example, “free gift inside” or “buy one, get one free” offers come with a cost. Ad-supported media such as TV and radio may claim to be free, but you must watch commercials to access free content.

On the web, “free” is often genuinely free. This is thanks to cross-subsidies, where money is shifted from one product to another or person to person. The idea is to get you interested in one product and then make money from you elsewhere. Four cross-subsidy categories support the free business model.

Firstly, direct cross-subsidies offer a free product that motivates you or someone else to pay for another product. For example, a credit card company may offer you a free card, but then charges sellers every time you use it. In a three-party market, the third party pays to use a market that you and another entity create. Advertisers subsidize the costly production of newspapers in exchange for exposure to their readership.

The freemium category offers a limited version of the product for free, but to upgrade, you must pay for the premium version. For example, Flickr is free, but Flickr Pro costs $25. Finally, in nonmonetary markets, cash payments are never a factor. Wikipedia is the most comprehensive encyclopedia, and it’s entirely free.

The idea of “almost free” is fundamentally different from “free” for most people. People will refuse to pay even a minor cost, but they have no barriers to getting something for free. Pursuing a free business model can be risky. Businesses need to do the calculations right to avoid negative consequences. However, the pursuit of “free” can also deliver tremendous rewards.

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