Could “Free” be the new price of your innovation?

I facilitate a network group for innovation leaders in Denmark. When we start up again after the summer, one of our focus areas will be business models. No wonder the new book, Free by Chris Anderson caught my interest.

In his revolutionary bestseller, The Long Tail, Chris Anderson demonstrated how the online marketplace creates niche markets, allowing products and consumers to connect in a way that has never been possible before.

Now, in Free, he makes the compelling case that in many instances businesses can profit more from giving things away than they can by charging for them. Far more than a promotional gimmick, Free is a business strategy that may well be essential to a company’s survival.

One of the strategies Anderson discusses in the book is the Freemium business-model. This works by offering basic services for free, while charging a premium for advanced or special features.

The Freemium business model was articulated by venture capitalist Fred Wilson who said: “Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base.”

We all know about LinkedIn and Skype which are two prime-examples of the Freemium business model. Unfortunately, there are not examples outside the digital world. At least not yet as I hope you can share other examples by adding comments to this post.

New possibilities, new challenges

I find the idea of Freemium and the other free business models mentioned by Anderson interesting for two reasons. The first one is that I have seen so many companies struggle on how to extract value out of the services they deliver as a part of their product offering. Too often, this is just a give away even though there is a potential for developing a separate business case. I think Andersons book can give innovation leaders working with this dilemma some inspiration.

The other reason is that I see this movement towards free business models as a shift which in general will create new possibilities and challenges for innovation leaders. It raises questions such as:

How can you incorporate the free business models into your offerings?

What if you brought in external partners that could provide a free element to your offerings?

What if you could contribute with a free element to the offerings of others?

What if you could work with partners to co-create a new offering which includes elements of the free business model?

What if your business model gets attacked by competitors using free business models?

I think these questions are worth taking into consideration whether you work in the digital space or in a more traditional industry.

As a last comment, I am intrigued by the combination of free business models and open innovation. How will this play out? I am not sure but I will keep you posted on my thinking on this.

You can find more information and inspiration on these links:

Free, the full book for free at Andersons blog

Free, a review by of the book by BusinessWeek

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