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 (or YASNSU: Yet Another Social Networking Startup).




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

Maybe yes. But maybe no.

In the past week, 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). Or in the case of Radiohead, free is an option. Most of their downloaders have opted to pay *something* for the download, at an average of about $5 per download. With more than a million downloads already, that's hardly a money-loser for the band (not to mention that bands mostly make their money on touring and merchandise, not CD sales)

Should small businesses worry about free-as-a-business-model?

Probably not.

But there are also cases where you can take advantage of the trend, for instance:

- offer a free version of a white paper or other customer-helping content in exchange for an email address, which becomes a useful lead

- evaluate ancillary services -- shipping, one-time customer support follow-up, related products or services, for instance -- and consider making them free

- make your initial consultation free, or offer it as an advance against future purchases

- in some limited cases, offer your entire product free and -- like Radiohead -- ask customers to pay for it if they find it useful (before music, the independent software industry was built on such "shareware"-style pricing)

Can you think of other ways of building "free" into your marketing and go-to-market strategy? Let us know.