By Christopher Melotti Submitted On September 11, 2016
There's no such thing as a free lunch- it's a sentiment as old as time itself, however it still holds as true as gravity. In a business model, if someone is getting something free, then another party is footing the bill. Over the last five or so years, organisations have found the 'free', multi-sided platform very innovative and effective, turning traditional ways of conducting transactions on its head.
In a free business model, a substantial customer segment continually benefits from a free offer, which is financed by another part of the model or customer segment. For example, RealEstate.com.au is a platform which lists properties for sale and rent for people to browse and apply for free of charge, instead charging the Real Estate Agencies to place their properties on display.
The most popular and captivating of these models, however, is the 'Freemium', which is where you get the basics for free and pay for the full version. Often, the free offer is offset by featuring paid advertising which is displayed to users as they use. It's quite effective when marketing Smartphone apps and software to the masses because there's no risk to the customer to give the product a try, therefore maximising uptake, and then once they enjoy the features, they will continue to use it. This leads to either revenue from advertising or users paying for the full version. Now, whilst customers were quite content enjoying the free versions for years, they are starting to change their behaviour.
Take Spotify, the popular music streaming service, as an example. It offers users free access to almost all music tracks, artists and podcasts on demand, right at their fingertips. It's free to use if you don't mind the occasional advert here and there between your playlists. Or even YouTube, which provides free access to endless amounts of video content for you to watch and get lost amongst, but be prepared to sit through adverts at the start and pop-up banners during.
That's all well and good, however with the saturation of adverts across all of these platforms moving in and really pushing the limits of customer experience and usability, the market trends are starting to shift again. People are beginning to see the value in ad-free subscriptions so they can gain all the benefits of the product without the interruptions and distractions of ads. So instead of just putting up with loud, jarring advertising in-between a customer's music streaming at the gym, they're now electing to pay the monthly subscription to gain the premium benefits.
This is an interesting shift for Marketing, as only years before, the customer was being pleasantly surprised by receiving effectively a service for nothing. It caught marketers and organisations off guard as it was revolutionary to not charge customers for a product. Most digital products and some innovative physical ones allowed for this paradigm shift, and it was highly profitable, however after years of this, the average person is becoming fed up with the extrinsic, non-monetary costs associated with their free use, and organisations are now seeing a demand for ad-free versions. This means that the typical modern customer who is quite accustomed to not paying, is now learning to pay again because the 'cost of free' is lowering their utility.
What a crazy, confusing and logically defying statement! Never-the-less, it's happening.
Truth be told, it's not like the cycle has exactly reversed to how things were before the free trend; all industries are seeing an advancement in the way customers interact and use these products. For example, with music, it's not like people are going back to paying $30 for a physical CD again. The overall market and the way a customer consumes music went from being free to now subscription-based, ad-free streaming. This seems to be the new and highly accepted trend now, which is being embraced all over the world.
Truth be told, it's not like the cycle has exactly reversed to how things were before the free trend; all industries are seeing an advancement in the way customers interact and use these products. For example, with music, it's not like people are going back to paying $30 for a physical CD again. The overall market and the way a customer consumes music went from being free to now subscription-based, ad-free streaming. This seems to be the new and highly accepted trend now, which is being embraced all over the world.
There has also been a rise in ad-blocker software which is another threat to the Freemium model, especially on social media platforms such as Facebook or YouTube, as these 'cheating' customers are receiving all of the benefits for free without having to 'pay' the trade-off of adverts.
It's an interesting trend, and it will be even more interesting to see where innovative thinkers will take organisational models to next.
​What are your thoughts?
By Christopher Melotti (BComm:Mtkg, MCommLaw, AMAMI CPM).
From my Marketing blog: http://www.melottimedia.com.au/blog
Christopher Melotti
Freelance Copywriter at Melotti Media
Freelance Copywriter at Melotti Media
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