Free vs. Close-to-free

The world wide web influences cost of things. It has made lot of things people once paid for free, be it the basics like news, email and communication tools, or not so basic things like websites, storage space and office applications. The power of adware is changing the source of income for product and service providers and bringing the cost for the end customers down to as low as zero. In this world, an important pricing question arises: should the product be free or close-to-free?

Couple of things come into picture when this question is answered. What is the barrier to entry in the market for this product? If the barrier to entry is low, and the product is adware-able, the wiser strategy is to make the product free and set a customer base before competitors following the “used apple strategy” enter the market. This is much better than charging for the product initially and then driving the cost down to zero when competitive products come into picture.

Versioning plays a role. A good strategy is to provide the basic set of services that are easily adware-able for free and charge the customer for the high-end services, the ones with a smaller set of targeted customers or the ones which will look attractive to the customers after they start using the basic set of services and familiarize themselves with the product.

Whether the price is set to zero or close-to-zero, the seller should do one very important thing: communicate the reasoning behind that to the customers, or in other words, communicate the source of income to the customers. If you are providing something for free, it’s important to explain the customers how you plan to monetize it. This makes it easier for customer to adopt your service and believe that there are no hidden fees. The most rediculous strategy is to keep something free, but take the customers’ credit card for records. Even with good intentions, this challenges the customers’ trust on the company.

Similarly if you are charging for something, justify it. Explain the customer why your product or service is worth paying for, and make it attractive enough for customers to accept it with that price tag. If something is on the web and is not free, you got to explain why, because if it is on the web, the customer expects it to be free, at least partially if not entirely.

3 responses to “Free vs. Close-to-free

  1. I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.

    Jason Rakowski

  2. Chris Anderson has an interesting article in Wired magazine on this topic:

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