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September 05, 2008

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John Banfill

The types you specify represent the types of free in a monetary exchange system. This is a small subset of the entire spectrum of free goods and services. Many types of free goods and services do not depend on, or have expectations of, monetary or barter exchange.

Some examples are:

1. Family members and friends may perform many free services and provide goods for the simple pleasure of giving something to a loved one.

2. Nature provides all types of goods and services at no cost. Air, sunshine, beauty, food etc.

3. Many people provide goods and services as donations or volunteers to help others - often even anonymous strangers. Many web projects, blogs, art works etc are provided simply out of kindness and generosity and the wish to improve life. Web and computer tools are providing the average citizen the opportunity to become a philanthropist.

Your models and thoughts are important because they help to show how the economy of free goods and services can be financed.

Toni

I think this doesn't capture (at least explicitly) some features like the following:

- in model FREE2, the fact that the more consumers the platform has, the more valuable the platform is for the advertising company. That's actually the reason why they get the product for free!

- a classical example from the two-sided markets literature in economics (which you should check if you haven't yet): the cover price to access a night club. Girls often get in for free as a way to increase the number of girls and attract guys (who pay cover) to the club. This is not exactly the same as FREE3 freemium, because in freemium the number of premium users does not change the utility derived by the free users (if I use flickr for free I don't care about the number of premium users, if I am a guy paying cover to get into a club I do care about the number of girls), nor it is covered by FREE2, since girls do not pay guys (perhaps you can generalize and consider that in FREE2 "'A' derives some utility from the presence of 'C' in the system -not necessarily money".)

Miikka Leinonen

This is the way I have explained FREE2 model from a web service angle:
http://www.slideshare.net/Miikka/how-to-integrate-partner-company-into-a-web-service

Maybe it will help.

JamesK

What about the kind of free where you get what you pay for - like when you sign up for a free copy of the wired issue about free and get nothing?

Simon

I'm not sure where the "product as marketing"/free sample fits into this? Walking to work through London, I'm often accosted with free drinks/snacks. They could come under FREE2, since the packaging could be seen as advertising, but one could argue that the design is part of the wider product experience. So, I've been given a free bottle of water/frappuchino without recompense or subsidy

//de

There is a fourth kind of free which I try to develop a bit here:

http://digitalextremist.com/fourth-kind-of-free

As well as in a forthcoming system I am designing based on IASCT.

//de

There is a fourth kind of free which I try to develop a bit here:

http://digitalextremist.com/fourth-kind-of-free

As well as in a forthcoming system I am designing based on IASCT.

//de

The comment posting mechanism hung in my browser for 5 minutes so I reposted but I guess the first one worked. Sorry! //de

Joel York

Hi Chris,

I get the models and they are clearly exhaustive
i.e., product subsidizes product, producer subsidizes producer,
or consumer subsidizes consumer....no other real choices.

But, I don't agree that the third "Freemium" model is new
or any more enabled by the Web than the others.

I think the Web has transformed all these models...because the zero production/
zero distribution cost aspect is contained in the individual arrows ...not the overall models.

If we need a good solid, old school physical world example of Freemium
...just go to a nightclub on ladies night...and then buy
table service. See how much you pay vs. the women.
(I suppose you could argue product subsidy or advertising here,
but I think I should stop before I get into trouble ;) )

WRT Free2, I'd argue that the Web is dominated by advertising revenue,
not Freemium revenue at this point based on Google alone. And, advertising has been transformed,
because the of micro-targeting and automation enabled by services like Google AdWords and AdSense
(and maybe FaceBook...someday)...which is supporting just about every free blog out there.

WRT Free1, it has been transformed by syndication (and even mixed
with Free2). Since Web products aren't just content, but applications
that can be widgetized, embedded, RSS'd etc. and re-distributed ad infinitum,
they can be cross-subsidized at extremely low costs, i.e., I don't have to set up a partnership
for a complementary product and then offer it free with mine,
I just sign up for the affiliate widget program and go!

Anyhoo...I can't wait for the book!

Cheers,

Joel York
www.chaotic-flow.com

G Barral

Maybe the new kind-of-free launched by Michael Moore it's the most risky but also the most radical and profitable one: He is flagging that he's only aiming the biggest turnout of young people ever on the polls but actually a $2m movie needs a payback. And it will come maybe from his book extra-sales due to this publicity, from TV shows inviting him, from merchandising of the first movie ever free downloaded (legally) via web, etc.

Jack Repenning

Another kind of free, maybe? Consider (as but one example of zillions), Chris Brogan, who offers a book which, like his (free, of course) blog, provides some real value from his professional experience and thought. But there's no question, he also provides for-pay related services, and also some ad-supported FREE2 services, and there's some sort of relationship among them all.

His FREE2 work is a clear FREE2 example, but I'm not sure his products like this book fit any of your categories. Might be a sub-case of FREE3, but the thing that's free is not so directly related to the thing that's for pay. The linkage from this free product to his for-hire and ad-supported products is less direct: the free things establish his credentials ... they're a job interview, or an ad. One might compare them to movie trailers (free entertainment, whose purpose is to draw you into paid entertainment).

Michel Bauwens

Dear Chris,

here's a four-fold typology of open and free business models I use in my open business models workshops, inspired by a typology of Steve Bosserman.

See http://blog.p2pfoundation.net/steve-bosserman-on-economic-sustainability-in-a-world-of-open-design/2008/02/19


Differentiating between open and closed content/code/design, and free/paid approaches, yields for quadrants:

a) Quadrant 1 = Open and free: you can download content, software code or open designs for free; and the more successful of these initiatives will derive income from advertising, selling the attention. The problem remains that many will not be able to do this

b) Quadrant 2 = Open and paid: why would you pay for open code? The short answer is you wouldn't, unless it is augmented by differential value that is scarce and also useful in your particular context; in this context you are paying for these added value practices that come together with the free code, not the code itself

c) Quadrant 3= Closed and free: this is a classic commercial strategy; you give the primary commodity for free (say, free cell phones), because it helps you to sell secondary commodities (say mobile phone connectivity)

d) Quadrant 4 = Closed and paid: the classic business model that we are all familiar with and which relies on state-protected intellectual rights monopolies. This is the model that is being most severely undermined by the free replicability of information.

This means that it is not just the hackers and consumers that threaten such a business model, but your own competitors. In any sector, there will always be a pioneering company that decides to give the primary commodity for free, or gives away the source code, deriving income from secondary modalities, leaving the traditional closed rights holders in the cold, and making this model unsustainable in the long run.

Thomas

Hi Chris,

i was just wondering, if any flat fee pricing models should be part of your model too. Especially when they are bundeld. I mean all this models that have a "feels like free" approach.

Of course you can see this models also as part of "Free 1", but to compare a feels like free model like "I buy a mobile device and get music subscription for free" and "I hear music from an artist for free and than I pay for his live show ticket" is difficult in my eyes. The customers make their "paying decisions" on completely different facts and motives.

Just a thought.
Th

Arthur

FREE3 is *the* way to monetize web content. It's self-propagating and is in essence a viral marketing scheme. Coupled with FREE2 as well as well as conventional e-commerce (+/- FREE1) this model can be quite lucrative.

The catch is that you have to work regularly and consistently to generate the content to attract the "basic" users. The pay off is that these users will convert to "premium" at a rate of 10% and they will also interface with the traditional e-commerce, generating a third stream of revenue.

I would propose that Michel Bauwens' Quadrant1 is a valuable model for a build-to-sell venture.

Kelly Shaw

Hello Chris - here is s great visualization of 3 Kinds of Free

http://preview.tinyurl.com/4xeldl

I pointed out your request for ideas and support to friend and colleague David Armano and he came up with a solid answer to your call.

I encourage you to contact David

Brant Collins

what about brand value. Maybe not a direct money exchange but will return as money with future purchase. Example: good customer service leads to customer loyalty. Would that be Free1? another example, it is said Sam Walton of WalMart would give small children free toys when they were in his store because he knew that would be something that child would remember and make them a loyal customer when they got older.

Laurent

Very nice and interesting. In the second model where 3rd party finance the free service with advertising : it's clearly free model if you consider free depends only of money... But if we consider attention as a new currency, then i consider i pay with my attention and the site is selling it to an advertiser.

Laurent

Very nice and interesting. In the second model where 3rd party finance the free service with advertising : it's clearly free model if you consider free depends only of money... But if we consider attention as a new currency, then i consider i pay with my attention and the site is selling it to an advertiser.

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What about the kind of free where you get what you pay for - like when you sign up for a free copy of the wired issue about free and get nothing?

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Tidbits

The Long Tail by Chris Anderson

Notes and sources for the book

FREE was available in all digital forms--ebook, web book, and audiobook--for free shortly after the hardcover was published on July 7th. The ebook and web book were free for a limited time and limited to certain geographic regions as determined by each national publisher; the unabridged MP3 audiobook (get zip file here) will remain free forever, available in all regions.

Order the hardcover now!