There’s no such thing as a free lunch. Anon
Once you expand your view to consider all customers, what may have seemed free at first doesn’t look quite so free after all. Generally speaking, there are two special types of free when it comes to business model patterns:
- Subsidised: one value proposition is so profitable, it pays for free access to another
- Advertising Rights: there are so many free users, advertisers are prepared to pay big bucks to access them
Let’s Google It
Everyone knows Google. Let’s look a business model view of them, illustrated here by the Business Model Alchemist:
Using Alex Osterwalder’s business model canvas (my absolute favourite business modelling tool right now), we can see two distinct customer experiences:
- Free search: billions of users everyday get to search for stuff, for free
- Paid advertising: Advertisers pay to get the attention of those billions of users (ideally the ones who might be interested) using Google AdWords
The key resource here isn’t the search algorithm, or the masses of super fast computers powering Google search…it’s the very large number of free users. Yes, we are being sold as a commodity to the advertisers. Why pay for a Google AdWords? Because it will reach a LOT of free users. Google are charging for access to their non fee paying customer segment.
Don’t worry, it’s not just Google. There are plenty of other free business models based on advertising, with advertisers paying for access to the non fee paying customer segments. Examples include free to air TV, free newspapers such as Metro, and free websites (with enough readers).
Subsidised Business Models
The other form of free or heavily reduced pricing is in loss leadership. You probably know it from examples such as supermarkets (subsidised milk, high profit biscuits or whatever), cheap mobile phones (expensive phone plans), and cheap printers (expensive ink). Each of these examples uses the enormous profits in one value proposition to pay for a heavily subsidised experience in another.
Multi-Sided and Free
In Business Model Generation, these two design patterns are presented as multi-sided (once segment is used as part of the value proposition to another) and free (or subsidised). You can find out more here.