Free vs Paid Business Models

Pujol offered several suggestions for how to monetize a free product:

• The two-sided platform separates your users into two categories. For example, ad-supported users of a website, and advertisers on the other side. In a video game example, you have the gamers and the developers.

• The freemium model has a single category of users, and you make money by upselling users. Your free user and your paid user are the same, but you have to find segments--some people will never pay, and others will be interested in the commercial transaction.

• The final model is called "tying"--it's the free lunch. A free cell phone with a contract, or in other words, it's free if you pay.

Pujol concluded by observing that while some people believe that the never-paying user is the worst case, there's still one thing that's worse than having a user who doesn't pay--when that user takes your competitor's free product.

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