We get this question a lot, and it’s a valid question. Today we will explore three ways that free makes money.
Facebook has been in the news lately because they sell data to make money. It has always been understood that Facebook makes money from ads and data, but most people were unaware how much data Facebook was actually collecting and sharing - and with whom.
Facebook’s model is not a new concept, giving free content in exchange for watching a few ads has been around since the early days of newspaper, radio and television. Facebook just appropriated a successful model and started tracking a whole lot more; and that’s where things started to get dicey.
We aren’t picking on Facebook specifically (it’s probably worthy of a blog post unto itself), but suffice to say they didn’t invent the wheel and they served to prove that companies can take the TV and radio model and apply it to online assets and be extremely profitable. Eyeballs for ads is real, very profitable and the easiest way for free to make money.
Another option to monetize free is to deploy a freemium model. Freemium involves giving away something of value for free in hopes that some of your users will find value in upgrading to a paid version. Conversion rates can range from 4%-10% on average, but recently Spotify enjoyed a 27% conversion rate. There are lots of successful freemium model examples, but usually these models are augmented with paid ads to further monetize free.
Another option is to sell data. This option does not have to involve selling personal data like Facebook did or even data that identifies users. It could simply mean selling aggregate data to people who have a vested interest in knowing aggregate habits. For example, a hedge fund wants to know trends ahead of the market, so it would be valuable to them to know that Coke is selling better than Pepsi in specific markets.
While there are other options, many of them border on being dishonest, so we will stick with these three for the moment. Either way, any option you choose, you should look at how your decision will: 1) impact your users; 2) impact your reputation; 3) impact your company legally; 4) impact your ability to sustain growth and profitability 5) impact your team and stakeholders. Whatever route you decide, above all be honest and transparent to all of your stakeholders.
If you know of other ways that meet our requirement of being honest and transparent, please reach out to us!