FREE as a Business Model¶
Definition¶
"Free" is never actually free of cost — it is a Revenue Stream architecture in which at least one Customer Segment benefits from a free or low-cost Value Proposition, financed by a different segment or revenue mechanism elsewhere in the model. The book describes it as one specific expression of the broader multi-sided platform pattern, where high traffic on the free side is what makes the paying side (typically advertisers) willing to fund it.
In the Book¶
Free-advertising-funded models are illustrated through the free newspaper Metro, which built its own distribution network and cut editorial costs to sustain circulation funded entirely by ad sales, contrasted with Facebook — which the book notes had over 200 million users in 2009 but, per industry data, generated advertiser response rates lower than traditional web ads, showing that "a mass of users does not guarantee huge advertising revenues." The chapter also details the "bait and hook" (razor-and-blades) sub-pattern through King C. Gillette's 1904 innovation of selling razor handles at a steep discount or loss while profiting from the recurring blade purchases locked in by patents — a structure the book notes has since been applied in sectors like inkjet printers (HP). A third variant, Freemium, offers a free basic service funded by a paying minority who upgrade to premium features (illustrated with Skype's free Skype-to-Skype calling subsidized by paid international calling).
Why It Matters¶
"Free" collapses into three different, non-interchangeable financing mechanisms once you name them — advertiser-funded, consumable-locked, and freemium-upgrade — and each implies a different growth strategy, different unit economics, and a different failure mode if the subsidizing side doesn't materialize (as Facebook's case shows: traffic alone doesn't guarantee the subsidy). Naming which variant you're actually running prevents mistaking "free" for a strategy in itself rather than a specific bet on where the real payment comes from.