• On Feb, 07, 2012
•  webn_genevieve
•  General

By and large the Internet is the land of Free.  The most visited websites, Facebook, Google, Wikipedia, are enjoyed by hundreds of millions of Internet surfers at no cost to them. So why are the founders of these company’s billionaires?

Internet economics have birthed entirely new business models where a minority of the customers who pay subsidise the majority who do not.  One version is called “Freemiums”, which is common for most start-up companies who want to get their software out in the market. They offer a “light” version that you can download for free, which is supported by a paid premium version.

Software firms such as Serif and McAfee do business this way, which is an inversion of the old free sample promotion: Rather than giving away one item to sell 99 others, you give away 99 “light” versions to sell one “premium” version.

Then there are businesses such as Facebook or Google, who provide free services for general audiences, while making huge profits from advertisers who pay for very targeted placement. Lastly, there are companies like Paint.NET or Wikipedia who do not charge at all and rely purely on donations from kindhearted and generous users.

This business model works best for tech companies because it is relatively less costly to give out  software than it is to give out actual physical items. Software can be downloaded off the internet so giving one sample costs the same as giving away 1,000, whereas food, drinks and other tangible items will cost money every time they’re given away.

In entertainment, games have met greater success than music. Famous bands such as Radiohead have popularly given away entire albums online in exchange for “donations” which probably only work if you are already rock stars, while games such as Angry Birds have met greater degrees of success, profiting from merchandising and licensing fees.

So as you are contemplating your own “Dotcom Empire”, study the stories of these and other successful companies.  Then, determine what kind of businesses work best with the “Freemium” model.