Issue No. 28 - April/May 2006
How ‘free’ services are driving profits
by Dr David Corkindale and Dr David Corkindale
It seems illogical that you can be commercially successful by giving your services away, but that may be the way of the future in some industries!
As the saying goes, “The best things in life are free”, so the best business model is to be “free”.
“Free” is already here and growing.
If you can make it work commercially, offering goods and services for free is hard for anyone else to compete against.
Just think of the current examples. EBay enables you to find and bid for all manner of things around the world for free.
The search engines like Google, Yahoo and MSN charge you nothing to search the internet.
You can get email services for free from a range of suppliers; millions of people are now making international phone calls for free by VOIP using services provided by Skype; McDonalds and many others provide free WiFi at their locations.
You might dismiss this phenomenon as only applying to internet-based businesses where the marginal costs of offering something, once the set-up is done, is very low.
You also might ask, how can I make money if I give things away free? However, think how the principle is applied in non-internet businesses already.
Take the video rental business: 20% of the profits can come from late fees. So, many of these businesses promote “3 for the price of 2” deals — that is, get an extra movie for free. What this does actually is increase the chance of a late return by 50% and so guarantees an increase in profit!
Think of house purchase finance brokers that have long been offering their services for ‘free’.
In the US a car insurance company will get you quotes from not only them but from their competitors, saving you the time and bother —this is free to you, of course.
Increasingly, financial service companies offer all sorts of free advice including investment research. In the corporate world we have free Linux software that will...