If You Made It Free, Would Anybody Care?

Sunday, August 14, 2011 - 14:04
Free hugs campaign

The allure of making money online is a powerful one. I’ll admit that I got caught in the entire eBay marketing hype a few years back because I wanted to get rich quick. And so naturally I lost some money in the process. I was beckoned by the simple dream, the simple meme: if you build it, they will come.

And so many build, and few show up, much to the dismay of the would-be internet millionaires.

The real question is not: how much should I charge for my products? This assumes there are people already waiting in line ready to part with their hard earned cash for what you have to offer. It assumes there is a demand. No, the real question is: how many people would use your product or service if you were to give it away for free?

Not So Fast!

Ignore your initial response of “of course people will want it!” Think how many books sit on the shelves for years in a library without being touched. Think how many pieces of exercise equipment that are now collecting dust in the basement. Think of how many TV channels go unwatched. Think of how many websites go unvisited.

Assuming enthusiasm can be very dangerous. After all, many people will turn down free hugs.

10:1

In a study on freemium business models (where you give away a part for free and charge for a premium version), it was concluded that the ratio of fee to paid users is typically 10:1. Therefore, if you’re target client base is 500 paid customers, the first question you should ask is whether or not you could get 5000 people to show up at all.

Shareware software is a perfect example. If your fully functional demo can’t achieve 1000 free downloads, it’s unlikely that you’re going to sell more than 100 paid licenses.

Some Realities of Free

Free wings! You would think a bar giving out free food would go broke, with 1000’s of people pouring in, devouring the food, and leaving without spending a dime. And yet, some bars may not even fill up to capacity. What gives?

  1. There is still the cost of getting there (time).
  2. There is still the expense of getting there (gas money).
  3. There is still the likelihood of spending money (beer, cover charges, parking).
  4. The wings may taste terrible (limiting desire).
  5. There may not be enough people living near the bar to ever fill up to capacity (limited potential audience).
  6. The patrons may be sick of wings (they desire other things).
  7. Some patrons may not like wings. Never have, never will!

And on and on and on.

How Hulu Created Desire

Hulu didn’t charge anything for their service in the beginning, because there was not enough desire yet. There were no apps, the service was still buggy, only a limited number of shows were available, and the only way to watch was on a computer.

Over time, that changed. People were able to play the shows on their big screen TV. All the major shows were now available. The quality of the experience was better. And most importantly, people got used to the service and actively depended upon it. It became something that would not be easy to replace if it started to cost money.

So when Hulu offered premium versions of their service, somewhere in the vicinity of 1:10 users probably paid for it. And with a high overall demand, those numbers are still meaningful. 10% of 1000 users is nothing. 10% of 100,000+ users can start to mean something.

By creating the demand first in this new market space, Hulu was able to then charge for it. Of course, it remains to be scene how successful this eventually becomes and if it’s sustainable.

Self Audit

In order to see if you are creating enough desire with your product, here are some questions.

  1. Does your product solve a problem that your target audience has?
  2. Do your target clients know that your product solves said problem?
  3. Do they believe in your ability to deliver said solution?
  4. Can you deliver a solution faster/better than any competitor?
  5. Do they trust someone else’s brand before yours?
  6. Are their free alternatives out there that people find acceptable substitutes?
  7. If you gave it away, realistically, how many people would actually use it?

How’d you do? These are not easy questions, but it’s important to determine the answers now versus spend a lot of money, time, and energy when the numbers will never work out in your favor until you course correct!

 

Free hugs image used from The Official Home of the Free Hugs Campaign.

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About Rick Manelius

Quick Stats: Chief Product Officer of DRUD Tech. Author of Winning the Lottery Within. Graduated from MIT in '03 (BS) and '09 (PhD). Life hacker and peak performance enthusiast. This blog is my experiment in creative writing, self-expression, and sharing what I've learned along my journey. For more information, read my full bio here or contact me.