Friday, July 06, 2007

Using 'Free' To Grow Your Business

There is a series of posts on techdirt (see list at the end of the linked article) that have culminated with a summary article about using the concept of free to grow your business.

The article raise two important points regarding the use of free in your business model. The first is that if done correctly, you can increase your market size greatly. The second is that if you don't, someone else will do it correctly, and your existing business model will be in serious trouble.

The author defines 4 steps that in theory can be applied to any market with respect to the economics of free. (The author admits that some markets might be more challenging than others)

  1. Redefine your market based on the benefits.
  2. Break the benefits down into scarce and infinite components.
  3. Set the infinite components free, syndicate them, make them easy to get - all to increase the value of the scarce components.
  4. Charge for the scarce components that are tied to the infinite components.
This sounds very straightforward, and I suggest you try it against your market or any market you have some familiarity with. I tried this with a few different markets and it was much more difficult than you might think. Probably the most difficult part for me was breaking down the benefits into infinite and scarce. In markets where the product is related to content, the concept of infinite is much easier to define.

For this post, I chose to try the post-secondary education market through this lens: (feel free to disagree or add on)
  1. Redefine the market: The benefit is innovation potential
  2. Break the benefits down: Infinite - course content, research results;Scarce - Field experts, facilities/equipment, thought diversity, idea diversity, degrees/certifications, talent pool
  3. Set the infinite components free: Make research results publicly available to companies and possible users of the research, (but track who is looking at it). Make all course information materials, book lists etc available online. Include sample or all video lectures. This supports the redefined market/benefits.
  4. Charge for the scarce components: Access to professors becomes more valuable, getting the certification and the schools reputation become more important, people who are serious about education will see higher value in that others who are there are serious about learning (while still allowing anyone with internet access to learn and see what the institution has to offer), getting the university to partner with a business to do R&D work (sponsorship).
Yes, I am sure you can shoot holes through the above idea or possibly have other ideas to make it better, but the point is to think about your business in a different light. The economics of free isn't just about giving away your product for free, but being smart about what can be given away and still be used to grow your business.

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