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Selling for Zero

Photography: Urban Mixer

It might not feel it. You probably aren’t noticing it in your wallet. And it certainly doesn’t apply to the price of loans, food aid or gas, but the world is getting cheaper. It’s not just that you can now buy a pair of Chinese-made jeans for less than $15 and it’s not only that you can pick up a basic laptop for $500 and one that would have cost four times that a couple of years ago for $1000.

It’s that many of the products and services that we use every day — items that bring real value to our lives — are completely free.

Email is free. Media programs like RealPlayer and iTunes are free. Even the music that we play on them and the videos that we watch on them are often downloaded for free too.

While we complain about the exorbitant cost of a frappucinno in Starbucks or the amount we pay to eat popcorn in a cinema, much of the world is moving towards a business model based on giving customers exactly what they want — and not charging them for it.

Of course, it’s not quite as simple as that. If you give your customers everything they want for nothing, you’ll soon find that you have nothing left to give. The principle has always been to give away just enough to tempt people to buy more.

Minitel wasn’t Free

Nor is the approach new. Businesses have been handing out samples for as long as they’ve been selling. What has changed is the number of items being handed out and their value to the user. If once you could receive 33 percent more washing powder if you were prepared to switch brands or get a free dessert if you ordered soup and a main course, now you’re able to search for recipes online, Twitter to the world what you’re cooking and IM your friends to invite them, all without spending a dime.

Mostly, it comes down to the rise of digital technology, and in particular, the Internet. Had the Web charged users from the beginning — in the same way that France’s Minitel did — it’s possible that users would now be paying by the page, the minute or the website. Instead, you have to look hard to find any media site that charges for its content. Even the Wall Street Journal is now moving away from subscriptions, reserving fees only for premium services.

And that’s the new model of free, a system that Wired quotes venture capitalist Fred Wilson describing as ‘Freemium.’ Most of the basic services that come with a product are given away for nothing and enjoyed by most of the users. A tiny fraction of users — as low as 1 percent — then pay for additional services, and those fees support everyone else.

It’s the system that dating sites use to allow people to post profiles and search the database while reserving the ability to send emails to paying members. Skype too lets its users chat to each other over the Internet for nothing but makes a profit when a small number of those people buy credits to call telephones.

Rules for Giving Things Away

That means that for a business to copy this model, it has to follow a couple of vital rules.

The first is that what you give away should bring value to the business too.

When dating sites let people post profiles for free they don’t just make it easy for people who prefer not to buy a subscription to become available to other singles. They also make their database bigger, their selection broader and the site more attractive and valuable.

When iJoomla lets Joomla programmers download some extensions for nothing, it increases the power of the content management system, creating a firmer foundation for people who might buy its premium add-ons.

And when the New York Times lets people read its content online for free, it increases the number of its viewers, making the company more valuable to advertisers.

Sometimes a benefit can be as simple as the extra business that will come from a free sample. Online though, the extra value often comes as a result of large numbers of people using the system — something that’s only likely to happen when the service costs nothing. The key then is always to find a premium service that you can charge for and that people will be willing to buy.

The second rule is that while the value of the freebie is high, its cost must be close to nothing.

That’s one of the reasons that so much is given away on the Internet. A bank of servers might cost a business a large sum of money but spread over millions of users the marginal cost is practically incidental. It’s why email providers like Google and Yahoo! are able to hand out gigabytes of storage to anyone who wants to fill them and it’s why handing out music can make sense for bands. Storing tunes online and allowing people to download them costs very little — it’s the touring that’s expensive, and these days, it’s where the profits are made.

The easiest way to square this circle then is usually to look to technology. Even a blog can provide both valuable information and, if it’s something you would like to write anyway, would cost next to nothing to produce. Alternatively, stripping away the most costly features of a product and charging only for those could work well too.

Every business has to find a way of translating what it produces into cash. In an environment in which users expect valuable services to be free, that’s harder than it sounds. But plenty of businesses are doing it and many are making a great deal of money by giving away their items for nothing.

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