Wednesday, November 12, 2008

What Are Free Customers Worth?

Harvard Business Review have recently published an article on what are free customers worth. The title is very eye catching, and I was wondering what was their definition of a free customer, but also, of course, what the article was about.

I have recently wrote a post on the 4 business models based on "Free". Indeed, on the Internet, most of the business model are based on free services, and get some indirect revenues. This article is thus speaking about one of the business model I was explaining in this previous article, where some people pay, subsidizing for free people. A large amount of people are using the service or obtaining the product at no cost, and the company is expecting to get their money back by earning from this exposure a clientele. This is actually very similar to the referral marketing concept, where you get new leads from managing your existing customer data base, at the exception that on a "by referral business", your clients offering you referrals have paid.

The idea of the article is to define an optimal way to manage this free customers portfolio, which will both gives you the most customers and limit the cost of your free customers.
I actually believe that it is a very risky situation to establish this kind of free customer business model. Having a great number of users shows your service is valuable, but it doesn't mean people are eager to pay for it. Therefore, it is interesting to study this business model, but also be aware of how dangerous it could get, especially out of the Internet sphere.