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What is a Free Business Model?

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  • Written By: Patrick Roland
  • Edited By: Kathryn Hulick
  • Last Modified Date: 22 September 2016
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The free business model is an economic theory that suggests money can be made by giving a product away. For many years this theory was strictly used as a promotional technique, but has evolved into a serious business model in the digital age. Companies giving away access and information for free, like online newspapers, create a revenue stream by other means. In many cases this model succeeds, but there are misunderstandings and problems with business model development when a product is given away.

A free business model has roots in the marketing promotions of years gone by. In the past, giving away a free sample or trial, like a free bottle of detergent in the mail, was a method of getting a product into consumers' hands in order to gain popularity. The products, however, did not remain free because consumers were expected to eventually purchase the item.

This free business model has become more evolved in the digital age, when the idea of giving a service or information away for nothing became feasible. Now products and information could be distributed for nothing, like music or news. Some companies developed a business model plan that gave their products away for free. The goal was to draw viewers and users with the free content in order to expose them to advertised products.

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An example of a free business model would be an online newspaper. In the past, consumers purchased newspapers in physical form in order to read the news. In the digital age, with online news being readily available, newspapers began offering content for free. In order to subsidize the money lost from physical sales, online papers ran digital advertisements like the kind in the physical paper. Newspapers under these types of business models were actually giving the primary product away for nothing and developing revenue from other sources.

Giving away content has worked for newspapers, television shows, some music and other products. However, this idea does not work for all industries and must be thoroughly planned before implementation. The name "free business model" is slightly misleading, because there is always cost involved, such as hiring content creators, operating a server, and even the expectation that customers must own a computer. For these reasons, this business model can be a major risk for a company thinking there is no cost involved in giving away products.

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