Another Business Model That Leverages 'Free'

from the having-someone-else-pay-for-it dept

When I first heard about TrialPay, I thought it was a bit gimmicky. However, in reading through a NY Times article about the company, I'm realizing it's actually yet another example of how to use "free" in a business model. The service is mainly used by software providers (who, remember, are offering an infinite good, which will face pricing pressures towards a zero price). The software developers officially offer their software for a price, but then also offer it for free if you agree to buy someone else's product. For example, you can get free anti-virus software if you also agree to get a subscription to Netflix. Note what's happening here (and how it sounds familiar). Software providers are giving away their (infinite) product, but they're attaching it to the sale of a totally unrelated (scarce) good, and are then profiting from the referral fees associated with those other goods. In other words, even if not explicitly, they've realized that their software products act as a promotional good for those other products. What's most interesting here is that those scarce goods are totally unrelated to the software that's for sale, other than through TrialPay's service. Effectively, TrialPay has helped makers of infinite goods tie up their products with other scarce goods that people would have thought were unrelated. So, the next time someone insists that there can't be a scarce good attached to certain infinite goods, remember this example.


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  1.  
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    Anonymous Coward, Feb 21st, 2008 @ 9:21am

    In your example, Netflix is the one offering the free, not the software company. I am pretty sure Netflix is paying the software company for its software.

    This is new?

     

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  2.  
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    Nick (profile), Feb 21st, 2008 @ 9:42am

    Netflix has an affiliate program. TrialPay verifies that the customer has signed up and paid for a new Netflix account, a scarce commodity (since physical discs are involved, hard costs in mailing the disc), Netflix gives TrialPay $40 for this customer signing up, then TrialPay releases the infinite good, the software, to the customer.

    Netflix is not playing TrialPay for the software. They are paying TrialPay for getting a new customer. Netflix could care less what TrialPay's tactics are for getting Netflix a new customer.

     

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  3.  
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    Anonymous Coward, Feb 21st, 2008 @ 9:50am

    So you short sided argument is look at this I (mike) am right. What happens if this fails?

     

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  4.  
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    Matt Bennett, Feb 21st, 2008 @ 9:57am

    Yeah, so my Winzip copy was actually for real trying to get me to pay for it (and really, who does that? Winzip?) I would've gone and downloaded a freeware alternative, but I get an email from them telling me they're give me an activation code if I buy flowers from FTD for Valentine's Day, Plus a 5% discount on the flowers! Well, I pretty much HAD to do that anyway, so while I almost never respond to promotional emails, I did in this case. It was a win-win all around.

     

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  5.  
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    Michael Wells, Feb 21st, 2008 @ 10:08am

    Whether or not Netflix is acutally paying for the software or not is not the point. There are two points here, first the software developer is making money or they are not releasing their software; so it is being paid for. Secondly it was the CHOICE of the software company to do this, it was theirs to do with what they want. If it was FREE they would let anyone download it at anytime.

     

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  6.  
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    neil, Feb 21st, 2008 @ 10:08am

    free with a catch right remember it doesn't matter how many times you can duplicate your product and give it away what matters is the profit you make from it

    McDonalds the world's largest toy distributor gives the toys for free they make money though don't they

    If you want music and software for free who is going to pay for your benefits

    if I give you, and hundreds of other people, a free t-shirt so that you come to my time share seminar and you don't buy the time shares I pay for the t-shirt if you do buy or if any one person buys they pay for the t-shirts.

    So I have to ask if you are a person who wants to buy a time share do you really want to pay for all the free loaders who scam free t-shirts

    Get a life Mike stop making the world pay for you free loading ass

     

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  7.  
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    Anonymous Coward, Feb 21st, 2008 @ 10:16am

    Someone is paying for the software, so it ain't free.

    Neil, was that english?

     

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  8.  
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    Anonymous Coward, Feb 21st, 2008 @ 10:23am

    question

    How would this business model apply to software that costs thousands of dollars and is only needed by very few (assuming the software is actually worth that much)?

    It seems you assume in your model that there is a considerable population who need the product, and that the product is relatively cheap so it can be a "perk" for a finite good.

     

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  9.  
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    Mike (profile), Feb 21st, 2008 @ 10:24am

    Re:

    Someone is paying for the software, so it ain't free.

    Um. That's the point with ALL of these "free" business models, is that someone is paying for the product in a different way.

    As we've pointed out time and time again, a "free" business model doesn't mean people don't get paid. It just means they don't get paid directly by the customer.

     

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  10.  
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    Mike (profile), Feb 21st, 2008 @ 10:30am

    Re: question

    How would this business model apply to software that costs thousands of dollars and is only needed by very few (assuming the software is actually worth that much)?

    As I said, this is "another" business model that involves free... not the only one. Again, the trick is merely to attach it somehow to a scarce good. For a product that only is needed by a very few people, my guess (without knowing any more about it) is that expertise on that product would be a very valuable scarce good.

     

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  11.  
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    Vincent Clement, Feb 21st, 2008 @ 10:32am

    Re:

    Then you try something else. It's called the free market - the freedom to succeed AND fail.

     

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  12.  
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    neil, Feb 21st, 2008 @ 10:32am

    Re: question

    remeber mike's argument is based only on the cost to duplicate the product

    software is always free to duplicate thus has a value of $0.00
    M = cost to make
    DD = cost to duplicate and distribute
    N = number of people who want to buy
    (M + ((DD)* N))/ N
    if DD = 0 then the formula simplifies to M / N
    as N goes to infinit M / N goes to 0
    see n mater how the much cost to make is the product should be free

    and yes i speek english but i dont write for a living and dont hold my english skills up to that high a standard

     

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  13.  
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    Michael Wells, Feb 21st, 2008 @ 10:33am

    Mike I agree with you that this is a different business model. But the two important points are that the software company is doing this voluntarily, no one is making them do this or stealing it from them. Also we all need to remember that both parties are making money here; this is just a different model with which to SELL it. Someone is PAYING for it. It is not FREE. So if someone is paying for it and the product is being controlled by the producer then it is not stealing. Netflix is passing on the cost of this to their customers, it is part of what having a business model is all about. Who do you think pays for the cost of employee theft and shoplifting? We, the consumers do in the higher price of goods; the business pass it on.

     

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  14.  
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    Anonymous Coward, Feb 21st, 2008 @ 10:50am

    Re: Re: question

    "see n mater how the much cost to make is the product should be free"

    Fair enough that you don't write for a living, but I couldn't understand that sentence at all. Presumably it's the final point of your argument, so it'd be nice to know what you were saying.

     

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  15.  
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    Anonymous Coward, Feb 21st, 2008 @ 11:00am

    Re:

    Presumably, Netflix isn't charging more for a customer referred by TrialPay than they're charging any other random customer. So if they're passing it on to us, then they're passing it on to the thousands upon thousands of Netflix users, so cost to each is negligable and the argument failds to impress. More likely, the cost "comes out" of Netflix's profits, making it much more like a standard ad campaign. Which it is.

    Now, you want to, I imagine, argue this is different than wanting music for free because "it's voluntary" and "someone's paying for it." It would be notable, then, to point out that Mike is no coercing anyone to change their business models, and no one is "forcing" any artist to do anything. Mike simply points out (again and again and again) that the cost of digital music is being driven towards zero by the market and if you DON'T change your business model then someone else will, and their model will succeed where yours fails.

    And again, that's the point: you make a business model that takes advantage of the infinite nature of digital music to promote yourself, like a fan-powered ad campaign. It will cost you almost nothing to distribute your music because fans will do that for you. There are costs (which are also dropping) to recording music, and these will have to be "passed along." That's where the new business model comes from, you find a way to leverage all your publicity. Traditionally, you'd go touring and make money off your performances, getting all your fans to buy finite seats for finite shows. If that's not your thing, find another way. Mike's "business model" is less of a fleshed out model and more of a "here's where the market's going, you need to adapt."

     

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  16.  
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    Anonymous Coward, Feb 21st, 2008 @ 11:03am

    "Mike I agree with you that this is a different business model."

    Different business model? How? How long has McDonalds given away toys with happy meals? How long has car dealers given away free oil changes with the purchase of a car? How is this new or different?

     

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  17.  
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    Anonymous Coward, Feb 21st, 2008 @ 11:12am

    Re:

    It's different because it's software, and you SELL software. Software has value, McDonald's toys don't. You can't write your own software*, but you can change your own oil**.

    It's different because someone's recognizing that just because a thing has inherent value that doesn't necessarily mean you can (or should) directly monetize it.

    *unless you're a computer programmer yourself
    **not universally true

     

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  18.  
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    Michael Wells, Feb 21st, 2008 @ 11:17am

    I meant that this was a different business model than the ones that had previously been argued in exhaustive post after post. That McDonalds and other companies "GIVE" away free stuff is a myth. I do not claim to know the exact models they use to run their different promotions, and true some are charged to their monthly advertising account; however the advertising is figured into the cost of the products produced or sold by a company. So whether it is directly marked up in the price of the Netflix service that is being bought or in another venture that they handle; the consumer is paying for it. I also agree with you that the business model in music is changing and that cannot be denied; but who is pushing it? The people that bought the right to the music, or the people who are stealing it and forcing the model to change?

     

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  19.  
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    Anonymous Coward, Feb 21st, 2008 @ 11:51am

    Re:

    I'm sorry, I got hung up when you said "bought the right to the music." Bought the right to the music? That just *feels* wrong.

    Forget, if you will (if you can), all the talk about pirating. The point is not whether your fans are stealing from you or not -- and they ARE your fans if they're listening to your music, however they get it. Maybe they can't afford to buy a lot of music, maybe they're cheap, maybe they're terrorists, whatever. The point is, what's your competition doing? You aren't the only Christian Punk Rap band, after all. If they're giving away their music for free, and you're selling it, all things being equal they'll get more fans just by exposure. And having more fans means more people who are willing to buy things like t-shirts and concert tickets which *are* finite goods. Perpetuating the artificial scarity required to sell music will only end up hurting you because you are preventing people from hearing about you.

     

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  20.  
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    Anonymous Coward, Feb 21st, 2008 @ 12:53pm

    I first heard of this at ZoneLabs (http://www.zonealarm.com/store/content/company/products/znalm/freeDownload.jsp), but never made the connection since they are making the offer with some of their own other products, that are related.

     

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  21.  
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    Eric Cartman, Feb 21st, 2008 @ 2:13pm

    Is this page free?

    I am watching this page for "free". I wonder which stupid moron is paying for hosting this page.

     

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  22.  
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    fentex, Feb 21st, 2008 @ 3:17pm

    Tying free to scarce

    I notice another article on techdirt today about the RIAA claiming crack dealers are promoting their product free with CDs.

    Crack dealers, smarter than the RIAA about business.

    Although it seems odd that it's the crack needing promotion - you'd think people would need to be smoking it to listen to modern music in the first place.

     

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  23.  
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    Marc Cohen, Feb 21st, 2008 @ 6:13pm

    The Toaster Model

     

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  24.  
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    Mike (profile), Feb 21st, 2008 @ 10:15pm

    Re:

    Mike I agree with you that this is a different business model. But the two important points are that the software company is doing this voluntarily, no one is making them do this or stealing it from them.

    Michael, that's the point. I have NEVER suggested that anyone be FORCED into this model.

    I am merely pointing out that if the market goes that way, then the MARKET will force them to do so. I am not saying that it's ok to infringe or that there should be a mandate requiring them to go free. I am simply saying that's where the market will go, and it's in their best interest to adopt those models.

     

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  25.  
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    Tim Sewell, Feb 22nd, 2008 @ 2:18am

    Expensive software

    "How would this business model apply to software that costs thousands of dollars and is only needed by very few (assuming the software is actually worth that much)?"

    Most software packages at huge pricepoints, especially enterprise level apps, come with extensive support services which are necessary to properly leverage the business advantages gained by using them. Expert support is a finite resource. As many commercial open-source vendors have shown, you can build an excellent business by giving the software away and charging for support.

    I'm a wedding photographer and I've found that the business of selling extra prints to wedding guests has suffered considerably since the move to online galleries etc - frankly for someone who just wants a few snaps to remember the day the quality they can get by right-clicking the online image and printing it is more than adequate. Therefore I now concentrate on those goods which remain scarce - the photography service itself; the high-quality albums to which I alone (as an accredited professional) have access; high-quality, high resolution prints and so on. I have also shifted the emphasis in my pricing to those elements.

    I am also about to massively reduce my online print prices to see if I can leverage the scarcity of wedding guests' time. That is - if I make it cheap enough to buy prints from me then maybe they will, simply because it's easier and quicker than doing it themselves. That way I still get to make a small profit on prints I otherwise wouldn't have sold due to online image-copying. If that works it has a knock on effect in that wedding guests who use that service will be entering a business relationship with me and giving me their contact details - possibly becoming full-service customers for me later when they get married themselves.

     

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  26.  
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    Twinrova, Feb 22nd, 2008 @ 4:24am

    Nothing is free despite any claims to the contrary

    In this model of offering free anti-virus to sign up to Netflix, it's common to overlook the true "cost" of the free software.

    I've yet to see a free anti-virus program offered by anyone that isn't ad based or comes with a subscription cost. In this case, I'm betting there's a subscription cost for the free virus program. Can someone confirm?

    Anyway, this is the classic "bait-and-switch" when it comes to free products. Software developers will often lower the base price of the product but make up for it in other ways, such as increased costs for add-ons, subscriptions, or charge for the "help" library. There's always a price attached somewhere.

    I get the gist of the article, though, but this is nothing new. This type of "buy this, get this free" concept has been around for years but I am going to insist that if market models show companies moving to a "free" product due to infinite supplies, then you can bet this company will find ways to introduce a fee structure that will recoup lost revenue.

    A company can not exist making simply one product forever. Not only will people tire of this product (usually because better options become available cheaply) but it's impossible to maintain the same "design" model as technology improves.

    Even your salad dressing has seen improvements. From the components that make up the dressing to the way it is packaged. But salad dressing doesn't go to the "free" level. If anything, the price is increasing.

    Yet salad dressing is also "infinite" when one tends to look at the basic ingredients in it. The reason we never see it as "free" is because it contains a shelf life, meaning that it'll spoil. But I've seen plenty of "buy this and get this salad dressing for free" offers. But is my salad dressing still free?

    No, it's not. It's been discounted and so has the item required for purchase. If both items are sold at $1 each retail and this offer is announced, what you're actually seeing is $0.50 for both items.

    NO COMPANY can exist by giving away its products for free no matter how much spin any of these articles tries to put on it. There is always revenue exchanging hands and I don't believe it's fair that you're trying to put in people's mind that free does exist.

    No, it doesn't. It never has and it never will.

    Note: Here's a tip that the software isn't free. Go to the store and walk out with a copy of the software without paying.

    Let's see how far you get because this software is "free".

     

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  27.  
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    Alimas, Feb 22nd, 2008 @ 8:19am

    Re:

    Uhm...does it matter? If I decide I want a timeshare and I buy it, I don't care what portion of your overhead for marketing it is you decide my money covered.
    If you were smart, your shirts were of such low quality and thus so cheap, that the selling of one time share effectively covered the cost and made you a profit.
    But, apparently, in your example, you didn't do that.
    Seems, you don't have what it takes to survive in a competitive environment.

     

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  28.  
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    Alimas, Feb 22nd, 2008 @ 8:25am

    Re: Re: question

    "software that costs thousands of dollars"

    Theres also that potentiality that most software being offered at thousands of dollars each isn't actually worth thousands of dollars each in the first place. Especially those in the hundreds of dollars range. *cough*Windows*cough*

     

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  29.  
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    Alimas, Feb 22nd, 2008 @ 8:37am

    Re:

    The McDonald's business model for the toys is easy:
    Extremely cheap plastics + extremely cheap Chinese labor = extremely cheap toy production overhead = happy meal covers toy cost and produces profit.
    But McDonald's is able to market their cheap crap like that cause unless a friend gives you his (thus losing it himself) you won't ever get one. Its a scarce good. Music can very easily and very rapidly be copied and passed on without losing the original copies. Its an entirely different situation.
    In addition, obviously in capitalism all effort comes at a measurable cost. We're not talking about free to everyone, we're talking about free for the customer.
    In this model its true that I still have to provide funds to get the software, but I'm also getting a scarce good, rather than just something, I could if I desired, acquire through cheaper means.
    Netflix came at the price it normally would without the software, but I still get the software. I win, they win, we all win.

    yay!

     

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  30.  
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    Alimas, Feb 22nd, 2008 @ 10:01am

    Re: Nothing is free despite any claims to the cont

    AVG. Free anti-virus. No update subscription. No ads.
    They charge for company licenses.

     

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  31.  
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    Twinrova, Feb 22nd, 2008 @ 12:32pm

    Re: Re: Nothing is free despite any claims to the

    Which means the free version is covered by the company license.

     

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  32.  
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    hazmaq, Mar 5th, 2008 @ 3:53pm

    Scams =Trial Pay

    I'm still stuck in a huge battle over this #$@!scam. First running into it through ZONE Labs.
    Here's my 'FREE' result's:
    Zone Labs removed the smaller security system and it's firewall from my computer and locked up -until I could prove I had brought some free stuff from another company equivalent to the price I had previously intended to pay for Zone Labs bigger Security Suite. That took three days to figure out what the hell happened to my computer and why I couldn't get online. Price $60.00.

    Then it took 5 days for the other company Columbia House DVDs -to tell Zone Labs I really did spend the money to buy a few shi**y DVD's. Price $40.00.

    Ao now I'm out over a hundred dollars, have a few shi**y DVD's and still no Zone Labs Security Suite.

    TrialPay and Zone Labs say "WTF"?

    And then BAM, more shi**y DVD's start pouring in through my new membership in Columbia House!

    When I say "STOP!" Columbia says "EAT IT!" And then charges my credit card another again -for a cancellation fee.
    Price $67.00.

    I'm sure they're all having a nice dinner with my 167.00 - while I still to this day have got nothing of what I originallly asked for.

    And "customer service"? Not even from Zone Labs have I been given an honest answer.

     

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