Thursday, February 14, 2013
Recently, I read a very interesting quote: "If you are not paying, you are not the customer, but you are the product". This surely is true for all the "free" technology we use - be it Social Media websites like Facebook or Twitter; Search Engines like Google, Bing; or other SAAS based companies offering free services. It is all apparently free to use. But the idea here is that we are not actually using it, but instead they are using us to build their product.
Let's start with the Social Media model for free to use. The websites like Facebook, Twitter etc. are free for it's users to interact with others. The data generated by users is actually becoming the medium for them to sell their product - which in this case is targeted advertising. So, the users here are the product which the companies are trying to sell to the advertisers.
Another model which is popular among the Free Services is to have a free service with basic features and then a paid subscription for premium features. This strategy is better known as the "freemium" model. The principle here is to offer a service with limited features for free and as the customers get used to the product, offer them with paid premium features. Here, the free users act as a marketing tool for these companies who generate the positive feedback for the product.
A unique example which uses the best of both the above strategies is LinkedIn. The leading professional network takes advantage of the user data they have to offer targeted advertising and also, efficiently use the freemium model to sell paid memberships which are targeted towards recruiters, job seekers and anyone interested in business development.
Open source software companies are very famous for offering free software. But, they have a business model here which in some cases has generated far more revenue than the traditional software licensing model. Most open source software companies generate their revenue by providing support and customization solutions. The free users that use the software help in testing and creating new modules for it, thus helping the software creators to have a great product with free help from other developers. The user creates the product and the software creator sells the service for it.
Then there are free applications, which once they get you addicted, they'll try to sell you stuff using "in-app purchases". Ever tried playing a Zynga game? You'll know what I'm talking about. Many apps like these will offer you to play free games and once the users are addicted they'll sell stuff which will help you advance in the game. An incongruous way to sell you what you wouldn't have otherwise bought (can you think of spending money for a virtual sword or virtual gold coins?).
Yes, the free service business is a facade - it's not free after all, unless, you are the product or the means to sell the product!