Thursday 3 June 2010

Why Free Service?

ALMERIA, SPAIN - APRIL 04:  An abandoned real ...

Startup often offer free service as an investment into marketing. With that they hope to get as many users as possible, that will allow them to monetize them later. A classic example is Facebook or Google. It's free for users, however in exchange, the company creates real estate, virtual real estate which they monetize.

Another example is freemium model. A service is free, but for premium features, users pay. An example would be Skype. Skype-Skype calls are free, but when you want to call  a number outside the Skype world, you pay.

The trick is that all mentioned examples have a very clear strategic path from financing adoption (giving the service for free) to monetizing it.

On the other hand there are quite a few startups that want to go out and start giving the service away for free, without actually having a monetization path. In a small number of cases that might make sense, but much safer bet is to understand the mechanics of the service first and than target marketing, promotion and monetization efforts accordingly.
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