Profiting from free

Profiting from free

Can a free offering and a financially sustainable business model co-exist?

Look at the evidence. Wikipedia. National Public Radio. Mozilla’s Firefox browser and the LINUX operating system. Facebook, LinkedIn, Twitter, Instagram, YouTube, Gawker. The Moodle software platform for on-line educational experiences. All free and all appear to be financially sustainable.

A free offering and financial success succeed when leadership is thoughtful about how it monetizes the free offering. Let’s explore why an organization may want a free offering and then how the organization can make money in other ways.

Why free?

First, your target market may not be able to afford to purchase what you want to offer them, the case for most non-profits. UNICEF serves truly poor children around the world.

Or you may want to build volume to gain network or economies of scale effects. It is doubtful that Facebook would have taken off without being free. Its large user base makes it hard for new social media platforms to succeed unless they are entirely different, like Twitter’s messaging and Instagram’s enhanced photos.

Third, a non-proprietary offering invites others to improve it, which is the reason open-source software platforms exist. Better programming ideas, enhanced features, better monitoring for glitches, more rapid prototyping, broader adoption, meritocracy, and community building are among the many advantages of open source versus proprietary platforms.

Free and open source offerings are also transparent, which enhances their brand image. GreenScreen® for Safer Chemicals is an open-source method for assessing and benchmarking chemical hazards. It’s become a reference standard (e.g., in LEED certifications) because users know what’s behind GreenScreen benchmarks; they do not sit in a “black box.” (Disclosure: I work with GS.)

Finally, free encourages customers to try your offering. Luminosity, which offers on-line brain enhancing games, provides a set of tests and assessment of mental skills. Had I scored lower I might have subscribed. Maybe next birthday!

There are many strategies for monetizing free offerings.

Subscription services for support, training, and integration support is one. Redhat built a successful business on the free LINUX computer operating system used by HP, Google’s Android, and others.

Using the platform to sell advertising and ads-in-disguise as content is a common monetization strategy. Google, Facebook, Twitter…we all know this drill. Google’s revenue rose as newspapers’ advertising revenue fell as advertisers substituted digital ads for more expensive print ads.

Spotify and Pandora, both music platforms, built their revenue through advertising. They also offer ad-free premium subscriptions. Corporations, job seekers and talent placement agencies use LinkedIn premium subscriptions to gain faster and better access to talent and jobs.

Licensing is another opportunity for revenue. Moodle partners pay 10% of their revenue to Moodle to support its development and maintenance. The partners host applications, offer security solutions, install, set up and customize Moodle and train users. They also offer support and help desks to organizations using Moodle for their educational offerings.

Individual donors and foundations fund many free offerings. The Red Cross and Doctors Without Borders come to mind in light of the Ebola crisis in Africa. The problem with this model is non-profit leaders must spend valuable time raising funds. They feel diverted from their real mission – solving a social or environmental problem.

Earned income streams can lighten the fund raising needs of non-profits. The Red Cross offers CPR, lifeguard and babysitting training classes. TOMS® provides a free pair of shoes to those in need around the globe for each pair is sells to consumers who like the brand’s look and fit as well as the company’s purpose.

Selling data generated from the free offering is the final strategy on my list. LinkedIn is sponsoring a contest to ID ways to use its database to advance economic development. I suspect LinkedIn is looking for new business opportunities.

How might free work in your business model?

More articles by Kay Plantes

Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. She resides in San Diego, California but still considers Madison home. She is the author of Beyond Price.

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of WTN Media, LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.