Is ‘Free’ a Small Biz Model?

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February 27, 2008 by Rich Whittle | 4 Comments

SmartBiz:

There’s been a lot of concern lately that Web-driven companies are headed toward another bubble burst. Among the warning signs: (too) cheap venture capital; companies built to sell-off, not for the long-term; and a proliferation of me-too startups.

Could this be another warning shot: “free” as a business model?

Maybe yes. But maybe no.

Recently, the Web has seen several high-profile experiments launch or get floated.

In one instance, the band Radiohead bypassed a record label contract and instead offered its latest album via its Web site for *whatever* users wanted to pay. Including nothing.

In another example, Universal is rumored to be trying to bring together other record labels to work with music device makers (such as Microsoft) to offer customers free, unlimited music subscriptions if they purchase a compatible hardware device.

Are these two music-industry anomalies? Or is free the new pricing baseline for Web-based businesses?

The reality is that neither of these offerings, of course, is truly “free.” Rather the costs to the consumer are either subsidized by secondary purchases (a very common strategy, for instance, in the cellular industry).

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