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 these 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. They have turned pirates into their promoters. Their gigs are always full and they’ve made enough money to buy their own private jet to take the band on tour.
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.
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. Ironically, one discount that can be highly effective in some circumstances is a discount of 100%. Giving things away for free can be a part of a winning marketing strategy.
In his book Free!, Chris Anderson outlines 50 business strategies that involve giving something away for free. There have always been free samples and loss leaders – there are plenty of examples of giving something away for free in order to make more money through sales later. A classic example is the Gillette razor, given for free but making money on replacement razor blades. Inkjet printers aren’t actually free but the main profit comes from the ink cartridges that users need to buy (frequently!) to use the printers.
Some of the most profitable computer games are ‘free to play’ but make big money from selling in-game purchases to a small number of superfans. Nicholas Lovell gives several examples of this in his excellent book The Curve.
Free is not a business strategy in itself of course, but it can be an effective part of a larger picture that in total is highly profitable.
Key Points
Giving some things away free can be part of a profitable marketing strategy.
What to do next
• Consider what you could give away free in order to increase sales of other products to make your business as a whole more profitable.