Freemium: Give it away free!

Creative entrepreneurs often ask me how they can make money from their music or computer games when MP3 files and software is so easy to copy.

One answer is to use the fact that people copy your stuff to change a threat into an opportunity.

Banda Calypso’s music is copied onto CDs and sold on street corners in Brazil. They don’t get a cut of this income but they don’t mind. In fact they supply theses street-sellers with master CDs to copy! And they organise things so that there is a plentiful supply of their music for sale in each town on the route of their tour, before they arrive to perform. They see this copying and selling as an advertising function and they don’t have to pay these street-corner entrepreneurs. Their gigs are always full and they’ve made enough money to buy a private jet to take the band on tour.

This is an example of a ‘freemium’ strategy that involved giving something away free in order to sell a premium product at a high price, which increases profitability overall.

Timothy Chan, one of the richest men in China used to get ripped off by copyright pirates. His computer game CDs were copied illegally and sold cheaply. He could have tried in vain to stop this. Or he could have let his business go bankrupt. Instead he changed his business to take advantage of the copying. He decided to make his money from online connection fees instead of CD sales. He changed the game so people had to play online and pay a very small fee per minute. The copied CDs spread like wildfire and so did his customer base. Every CD copied now helped his business.

Smart entrepreneurs see opportunities when others see only threats. They change their business models to take advantage of changing technology, economics and social trends.

See also: 3 (or 14) Kinds of Free

In this short video from a speech in Colombia, David explains why he gives away one his books for free, using the Freemium business model.
‘T-Shirts and Suits: A Guide to the Business of Creativity’ can be downloaded as a free eBook in PDF format here.