Chris Anderson addressed the concept of the changing – and sometimes confusing – new models of business in this new economy. His new book Free discusses the finer points of a “Freemium” economy. It’s where things are heading, and we better get on board.
About Chris: One of the most knowledgeable, articulate voices at the center of the new economy. In addition to serving as the managing editor of WIRED, he is an entrepreneur and the author of two New York Times best sellers. Below are my primary takeaways from his talk.
Takeaway #1. Doing something niche and focused in the global marketplace is a completely viable proposition. Anderson elaborated on some examples that allow businesses to find their customer, in a niche, wherever they are in the world. For example, Italian designers; The fashion industry is dominated by small designers with global impact. Anderson also spoke about the ability to go online, find a manufacturer to make your product in China, and order 100, or 10,000, or 1,000,000 of that product. Niche…the small guy…agility. The market is heading in a direction wherein the little guy will likely learn to scale up before the big guys learn to scale down.
- Define yourself and your customer.
- Find your customer, and let them find you.
Takeaway # 2. The power of free. Lower the barriers and allow the customers to dip in, then charge them. In 20th century terms it’s called “cross subsidy.” Jello was an unsuccessful company until undertaking a specific promotional campaign. Approximately five million free recipe books were printed and given out to households, door-to-door. Jello then, in turn, went to stores and said, ”You’re about to get a flood of people asking for this product.” Jello had created a situation in which the book was useless without the ingredient. They created an enticing, and free, promotion which compelled a purchase.
Takeaway #3 – If you have a digital arm to your business, Freemium is the way to go. Giveaway one thing, and create a lifetime demand for something else. Anderson says the Freemium model is about giving away 90% of your product, and charging for 10%. Customers are able to experience the product, and then have the choice to upgrade (note: you need to develop a second product for which you charge). Customers who continue with the free product continue on in their role as a pooled audience which has value (e.g., advertising value). The customers who convert to paid, Anderson notes, are the “best customers.” They are familiar with the product, they upgrade based on knowledge, and there is very low churn. The old model is to seduce the consumer into buying the product, and then hope that they like it. We’re forced to distort and over-sell the product to entice them to buy it. Their only chance to experience the product is to buy it. They feel like a sucker afterwards if they don’t like it.
1. Create a free, enticing offering allowing consumers to experience the product.
2. Create a paid, second product (this is the challenge – What is the second product you’re offering?)
For more on Chris Anderson, please see this blog post from Steven Fisher.