At some point in your life, you will wake up and discover that you have more money than time. And you will then realize that you should start doing things differently, which means not walking four blocks to find an ATM that doesn't charge a fee, driving for miles to find cheaper gas, or painting your own house.
This same calculus is the foundation of a big part of the "freemium" economy. We see it a lot in free-to-play online games, such as Maple Story, where you can buy things like "teleportation stones" to let you get from one place to another without a long slog or wait for a bus. Most of these paid digital assets don't make you a better player, but they do allow you to become a better player faster.
If you're a kid, you probably have more time than money. That's the force behind MP3 file trading, which is kind of a hassle and but is free (albeit illegal, of course!). As Steve Jobs famously pointed out, if you download music from peer-to-peer services, fixing the messy metadata as you go, the time it takes to avoid paying means you're working for less than minimum wage. Nevertheless, that works if you you're time-rich and money-poor. Free is the right price for you.
But as you get older, the equation reverses and $0.99 here and there no longer seems like a big deal. You migrate into a paying customer, the premium user in the freemium equation.
As some of you may know, one of my other side projects is an open source hardware company (developing and selling aerial robotics technology), and so I've been following the emergence of the open source hardware world closely. It's a really interesting example of how to make money from free, one that adds a new dimension to the open source software world because it's about atoms (which have real marginal costs), not just bits.
The way most open source hardware companies work is this: all the plans, printed-circuit board files, software and instructions are free and available to all. If you want to build your own (or, even better, improve on a design), you're encouraged to do so. But if you don't want the hassle/risk of doing it yourself, you can buy a pre-made version that's guaranteed to work.
For instance, take the great Arduino open source microprocessor that our autopilots are based on. You can build your own, with full instructions. Or buy one. Most people do the latter. The Arduino team make their money from a certification license fee they charge the companies and retailers that make and sell the boards.
You can build a good business on this model, as Limor Fried (AKA LadyAda, picture above), has shown with her electronics kit retail/design/community AdaFruit Industries. She and her business partner, Philip Torrone, explain the economics and tactics in a presentation here (good summary here).
- Build a community around free information and advice on a particular topic.
- With that community's help, design some products that people want, and return the favor by making the products free in raw form.
- Let those with more money than time/skill/risk-tolerance buy the more polished version of those products. (That may turn out to be almost everyone)
- Do it again and again, building a 40% margin into the products to pay the bills.
As Torrone said in an email, "I can't imagine doing a book, a video, a magazine unless I had a community that would rally along the way. In the end it always seemed to be about a story, people like to see the beginning, middle, end and plot of something -- and if there's a buy button somewhere, they sometimes click it and reward us for working hard."
Presto: a free business model that scales neatly from bits to atoms. It's exactly what we'll be doing at DIY Drones, too. Not just because it's free, but because it works better than anything else out there. It's not a bad way to think about writing a book, either ;-)