How to Make Piles of Money from Charging Nothing

How to Make Piles of Money from Charging Nothing
By David Rogers | July 20, 2011

Digital Marketing Strategist



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The streaming music service Spotify arrived in the US market to much hoopla and expectations of huge success. A music observer might wonder why, considering the fact that Rdio, MOG, and Rhapsody have been offering pretty much the same product in America for a while now. Yet, I tend to agree with the hype-sters: I think Spotify will be very successful. What’s the difference?

Spotify Offers a Hook

The basic service is free. Sure, you may want to upgrade to a paid subscription in order to skip Spotify’s radio ads, or listen more than 10 hours a month, or use it on your mobile phone. But Spotify will soon be offering millions of Americans the chance to choose any song they want and listen to it immediately over their desktop… at absolutely no charge.

Charging most of your customers nothing for a valuable product might sound like a crazy business proposition. But its value is by now well documented.

A recent study by Flurry Analytics found that mobile phone games that are free to download, are actually making more money than those that charge. Rather than asking $0.99 to download a game you have never tried, these companies let you download the app for free, then entice their most avid players into paying quite a bit more than $0.99 for in-game virtual goodies like farm crops or power boosters. In June 2011, among the top 100 games in the iTunes store, free games generated almost twice as much revenue as games that charged to download.

The “Freemium” Business Model

Offering your product for free, and charging your more committed customers for premium services, is actually a common strategy. This business model is often called “freemium,” a term coined by Jarid Lukin and popularized by venture capitalist Fred Wilson.

A freemium business is not a free ad-supported service like Gmail. Nor it is that hoary come-on, the “free trial period.” The problem with trial periods is that far fewer customers sign up, especially if they have to give a credit card in advance so you can charge them after 30 days. In fact, after 30 days, a customer may still not have gotten around to finding out if they really love your service, so you just lose them as a customer.

The freemium business model works like this: Everyone gets your product or service for free, forever. But those customers who really like it, and find most value in it, will have a strong temptation to upgrade to a “premium” (paid) service which has lots of additional goodies. It is, at heart, a strategy of pricing by customer segmentation. It also requires a lot of insight into your customers and how they use your product.

Here are four examples:

1) Skype. The popular internet calling service is free for those millions of customers who use it just to call or videochat between two computers anywhere in the world. Skype only charges if you want to use it to call a landline phone. And yet, so many of its avid customers ponied up for that extra service, that the company was able to sell itself to Microsoft for $8.5 billion.

2) The New York Times. After building up a huge online readership (the source of lots of online ad revenue), the newspaper has has recently switched to a freemium model. Casual readers can still get up to 20 articles a month for free, and articles spread by social media like Facebook don’t even count towards this limit (so the Times keeps its audience large for advertisers). But loyal readers now have to sign up for paid accounts if they want to read more than 20 articles, or enjoy the Times mobile apps.

3) Evernote. The popular note-taking web service recently topped 10 million users, thanks it to its free service, which allows users to clip articles, images, photos, and voice memos into virtual “notebooks” that they can access from anywhere via the Web. Nearly half a million of those users are paying for Evernote’s premium service, which allows them to store much more data, include more file types (like PDFs), and easily share and collaborate with others.

4) Apple’s iCloud music service. Recently announced, and launching this fall, this service will allow Apple users to store online every song that they have purchased from the iTunes store, and to synch them across phone, mp3 player, or computer, without any need for pesky wires. If you love the wireless experience, you can also store and synch all your non-iTunes songs—for a fee of $25 a year.

Real Customer Insight Required

The freemium model requires that businesses rethink their customer equation. Acquisition (attracting customers) comes first, and monetization (turning them into revenue) is second.

A freemium model adds value to your customer, by demonstrating the benefits of your service before they are expected to pay for it (a powerful incentive in this lean economy). It also adds value to your business in two ways:
Acquiring customers incredibly rapidly, with much less marketing spend
Monetizing your customers based on their price sensitivity, and the value they derive from your business. (Even your free customers may generate revenue via advertising)

Most importantly, a freemium model requires deep customer insight. It hinges on uncovering the key shift in behavior between your casual users, and those customers who truly value your service. What happens when customer love you? Do they use your service more hours each month? Use more data storage? Go on to advanced game levels? Use your product for work and not just personal use?

If you can find that customer insight, and if you can offer at least a basic version of your service at minimal cost to your firm, then you may be able to follow the freemium model, and make much more money by letting your customers in for free.

image courtesy of flickr user, Sorosh

http://www.bnet.com/blog/digital-marketing/how-to-make-piles-of-money-from-charging-nothing/261?promo=713&tag=nl.e713

The Stealth Approach to Achieving Big Goals

The Stealth Approach to Achieving Big Goals
By Jeff Haden | March 28, 2011


Ask anyone who is overweight if one of their goals is to lose weight and most will say yes. But losing weight is hard, so most people look for help, fueling a market for weight loss products and services worth about $120 billion in the U.S. alone.

The CDC estimates 34% of Americans are overweight, and a further 34% are obese, so it’s obvious most people don’t achieve their weight-loss goals, even after spending thousands on products, services, and support.

All of us know how to set goals. We know how to set conceivable, achievable, measurable, aligned, etc., goals. We create checklists and milestones and find ways to reward ourselves after making even the smallest gains. We know achieving goals takes determination and drive and effort and persistence.

We think about our goals a lot, as evidenced by the popularity of this recent BNET post by Kelly and Marshall Goldsmith about achieving goals.

Yet despite our best intentions and efforts, much of the time we still fall short.

If you’re failing to achieve a major goal, don’t resolve to try harder. Don’t apply the same old strategies. Don’t do more of the same while hoping for a different result.

Instead, try achieving a different goal — one that will naturally result in achieving your primary goal. Try the stealth approach to goal achievement.

Here’s how it works. Say you want to lose weight. Look around: Who tends to be thin and fit? Runners, to name one “group.” Not people who run; runners. As the old saying goes, you may see a fat person running, but you’ll never see a fat runner. (I know other “groups” are also thin and fit. I chose runners just to illustrate the point.)

Runners are thin because they can’t help but be thin: They burn tons of calories, eat healthy to try to improve performance, spend idle moments thinking about achieving their running goals… and in the process, without focusing on losing weight, they become or stay thin and fit.

So if you want to lose weight, one stealth approach is to train for and complete, say, a marathon. I guarantee you’ll lose weight in the process. And you’ll feel an incredible sense of pride from having conquered a separate and amazing goal. Achieve two goals for the effort of one? You can’t beat that.

Is training for a marathon an easy way to lose weight? Oh, hell no. But unlike the endless parade of “incredible weight loss breakthroughs,” it works. Achieving a difficult goal isn’t easy; if it was, everyone would be successful, satisfied, and fulfilled.

You can apply the stealth approach to just about any goal, whether personal or business. Here are a few quick examples:
Want to be an entrepreneur? Don’t focus on forming an LLC or developing a business plan or setting up accounting systems, at least not at first. What do entrepreneurs really do? Entrepreneurs make money. Focus on learning to make profits. Turn a hobby into a business, no matter how small. Turn a skill into a sideline. Become an entrepreneur and you’ll learn a lot, start to spot opportunities, and begin thinking like an entrepreneur because you are an entrepreneur. Before long starting a business will seem easy because you’ve already done it once.
Want to get more media opportunities? Developing a better delivery and presence will help, but who gets media opportunities? Experts. Become an expert in your field and have something original or insightful to say. When you’re an expert it’s easier to get booked, and often the media will seek you out.
Want to write a book? Don’t spend hours learning how to find an agent and write killer proposals. Start small and focus on writing things people will read: Newsletters, articles for your local paper, items for local organizations, etc. Writers write. Become a writer and the ideas (and skills) for a book will follow.
Want to be rich? If you’re starting from scratch getting rich isn’t easy. Who tends to become wealthy in a relatively short period of time? Athletes. Entertainers. Business owners. If you want to be rich, don’t focus on money. Become a business owner and focus on building an outstanding business. In time you possibly will be rich, in more ways than one.

Think about what you really want to achieve, no matter how difficult it is to imagine. Then think about a way to sneak up on your primary goal by achieving a different yet complementary goal. It won’t be easy, but nothing worthwhile ever is.


http://www.bnet.com/blog/small-biz-advice/the-stealth-approach-to-achieving-big-goals/606?tag=content;drawer-container