How Do Free Services On The Web Make Money? - Forbes

Most free web services plan to make money by the following:

Freemium model – sell a free product and plan to convert some of them to a paid plan. Majority of SaaS products use this model. Limited period promotion – Start with the free product for a promotional initial period and plan  to charge it later. For instance, 37 Signals provides free 30 day trial  offer for most products and then charge if you use later. This is a  tough thing to master these days. Targeted advertising model – Know as much as possible about the user and bring targeted ads. Eg. Facebook and Google. Sponsorship model – If your service indirectly helps the government and/or major organizations, you could ask them to sponsor your service. Eg. Khan academy is funded by Gates foundation and Google. Wikipedia model -  You could get donations from your users. Many wordpress plugins, open source tools, and Wikipedia do this. This could be the future of  newspapers.   Gillette model - Printers and razors are  sold less than cost, as they plan to make high margin from selling a  complementary product (cartridge/blades). The printer or blade you  purchased will turn worthless if you don’t buy the super-high margin  complementary products from the manufacturer. On the web, for instance,  you could create a cloud based spreadsheet /word processor that is free to  edit/create documents, but charged money for exporting it as a file to  the local machine. Or you could charge high for the iPhone app that can  access the data natively. Open Source Model - Sell the product for free and plan to make money on support, customization, and  installation. Most open source software follow this model. Usage charge model -  This is related to the freemium model. Give the product free for low usage, but charge when the user is exceeding the free limits (many  storage applications such as Dropbox fall under this). Zynga model – Sell products through in-app purchases or to get forward in the game.   Credit card model – In this model, you make your product free for one side (consumers)  and use the network effects to make the other side (merchants) pay. Facebook, Yelp, and other online marketplaces are now getting on to the  model. Upsell/Cross-sell – Sell a free product and use that to promote a premium product in the same segment. For instance, if you run a finance website, you could give stock quotes free and sell  premium analyst reports and financial planning tools. Build a brand – Use the free service to get brownie points/good press and use the  brand image to sell premium products (directly related or not) later. Affiliate marketing – Signup for affiliate programs related to your service and convert your users to customers of your affiliates. Sell it to Google – Build a big user base that might attract a big buyer such as  Microsoft or Google, who might use the user base to sell their premium  products/services. Many companies such as Freebase and Powerset found their nirvana this way. Make your next venture a success – If  none of the previous stuff works, you could run a free venture to build  your personal brand/get popular and hope to get funding for your next  venture.

Unless you are talking about a purely altruistic venture, there is nothing  really free. As the popular saying goes, “If you are not paying, you are  not the customer, but you are the product.”

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