In the modern world of business, particularly those now operating in online, digitized environments, the word "free" can have multiple definitions depending on the context in which it is used. If something is free, it is generally understood to mean that there is no financial cost to the consumer. Often these days, however, that is only half of the truth.
Over the past decade, the 'freemium' model has become the dominant model for many emerging businesses while it often feels as though ads are becoming ubiquitous across the spectrum of services now available to us. Considering this, let's take a closer look at what it means for something to be "free" today. Why are businesses choosing modern payment models over their traditional counterparts and importantly, how does this benefit the consumer?
What can "free" mean?
Depending on the product or service you are using, one of the following definitions of "free" may be used:
Completely free – as the name suggests these products have no financial cost at all, with no hidden charges in the terms and conditions or a requirement to pay for additional features. Much of the open-source software available to download on your computer incurs no charge at all. Well-known examples would be Linux operating software, free casino games available on Canadian online platforms as well as web browsers like Google Chrome.
Freemium – this model offers consumers a free basic version of the product or service with the full premium package available for an additional fee. The concept works due to the fact that the free version often provides a worthwhile product, putting the choice in the hands of the customer whether they want to pay for additional features. Many iPhone apps and online services use this model including Dropbox, LinkedIn, and UberEATS.
Ad-supported – in this case, the product or service on offer is free to users, with the caveat that adverts fund whatever is on offer. While this gives consumers the ability to experience the full features available, they must accept being exposed to ads and often provide data to help companies target their ads more effectively. Social media services such as Facebook and X are great examples of ad-supported products. Some companies also offer an ad-free version of their product for an additional fee, incorporating aspects of the freemium model.
Free-2-play (F2P) – a hugely popular model in the gaming industry, the free-2-play model shares similarities with freemium products, offering consumers the ability to download their game free of charge. Companies monetize these games through optional in-game microtransactions which often enhance the player experience. Many of today's most popular games like League of Legends and Fortnite now utilize this model.
Limited time trials – commonly used by emerging companies trying to attract new customers, limited time trials are another popular "free" model utilized by companies. After the free trial ends, customers then have to pay the service fee, usually in the form of a monthly subscription. Streaming services like Disney+, Netflix, and Amazon Prime all use this model with the hope that viewers will continue to use their service for a fee.
For companies...
So why don't companies simply charge consumers a fee for their services, what are the benefits of employing "free" models like the ones discussed above?
Attracting more customers
By offering a free service, companies can attract a significantly larger customer base than they would by offering a paid service. Everybody likes something when it's free, and so companies utilize this consumer mindset by offering their product with no upfront cost. As customer engagement increases, then so too does brand awareness in what becomes a positive cycle for the business.
Revenue generation
Despite the concept of "free" many of the models discussed here lead to impressive revenue generation for the companies involved. For example, the F2P model in the gaming industry has shown to be more lucrative than traditional upfront payment methods, with several leading franchises now transitioning to the "free" model in search of higher revenues.
The chance to upsell
Offering free services to customers provides the perfect opportunity to upsell the premium features available on their paid services. It is common for consumers to become hooked on a product and begin to see the value in paying for the premium product. Spotify is a perfect example, with many people enjoying the ability to play their favorite music, but the chance to do so ad-free seems worth the extra cost.
For users...
It's not just businesses that benefit from "free" models. There are several ways in which the consumer experience is also improved.
No upfront cost
No initial financial commitment lowers the barrier to accessing new products and services, giving many consumers the chance to try things they might not be able to if there was an upfront cost.
Puts the choice in the hands of the user
Ultimately, offering premium services for a fee puts the choice in the hands of the customer. If they feel the product is worth the extra cost, then they may decide to pay the fee to access the full package. If they don't feel financially able to do so, then they can continue with the free model.
Competition from free-play models improves quality
The popularity of "free" models has also impacted consumers in an indirect way. Due to the competition between companies, free services are becoming more and more common and to encourage customers to use their service, more of the premium features are being made available on the free version. This is improving the general quality of the free product, without the consumer spending a penny.
It is clear that the meaning of "free" is certainly more complex than it seems at first glance. As the way companies operate continues to evolve, so too does the way they monetize their products and services. In many ways, companies are responding to shifting consumer preferences with many people preferring to have the power to decide when to pay for something. Expect to see the concept of "free" continue to morph as our world moves forward.