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Free Pricing

Offering free pricing is a fast growing and a successful sales strategy. In the offline space, pharmaceutical companies provided free samples to doctors long before we started seeing multiple free products being offered in the online space. Hotmail was a pioneer of free webmail email service. Today, we have open-source programs as an alternative to almost any paid software. Wikipedia has emerged as the largest free online encyclopedia; Craiglist provides free classifieds and Google provides most of its services free of charge.

This ‘free pricing’ trend is increasingly gaining momentum on the web due to some of the reasons listed below:

  • Rapid price decline of Internet’s underlying technologies – storage, bandwidth, and processing power
  • The incremental cost of serving an additional customer on the web is close to nil.
  • Reach of ‘Free’ products or services is faster. In a short span, these products or services attract the attention of users and help develop fan clubs
  • Companies providing free stuff may not earn from direct users but earn from an alternative source. e.g. Google provides a lot of free services but earns through advertising revenue

Every company will have to either provide their services free or chalk out a strategy to fight the battle with companies providing free services. Pentaho is the largest worldwide open-source BI solution provider. With the growing popularity of Pentaho, Microstrategy started offering its fully functional Reporting Suite for up to 100 business users at no charge. This move will help Microstrategy to work with higher number of companies at an early stage and provide more advanced features at a price.

At the end of the day, companies will have to generate revenue through alternative approaches to sustain themselves. Some of the alternative methods are discussed below:

  • Cross-Subsidy: This mode of revenue generation is very common. Retailers sell a free product with a paid product e.g. a toothbrush free with a toothpaste or a headset free with mobile phone.
  • Premium Services: This form of revenue model is quite popular. Though the basic version of a software or service is free but one needs to pay a premium either to get a better support or to get enhanced features. A number of Linux based applications are available free and also sold as a paid premium version.
  • Promotion Based: This process has been adopted by companies who provide free services to their users but charge vendors for promoting them. Google and a number of social networking sites/portals follow this model.

In his book ‘Free: The Future of a Radical Price’, Chris Anderson says, “Free is not a magic bullet. Giving away what you do will not make you rich by itself. You have to think creatively about how to convert the reputation and attention you can get from Free into cash.”


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