Is Free Really a Business Model?

by Michael Gemignani

Chris Anderson has written a book titled Free in which he argues that the amount of stuff available for free, gratis, nada, is equivalent to the economy of a good-sized nation. We are all aware, of course, that the Internet can supply us with a substantial number of goods and services for which we pay absolutely zip. Obvious examples include Google, freeware such as Firefox and OpenOffice, and “cloud computing” sites where we can carry out various tasks like tracking our finances and word processing. Indeed, there is so much free available from the Internet, one can do a great deal of work on a PC without having to spend a dime other than the cost of the hardware and an Internet connection.

Still, it is clear that what might be free for me must have cost someone else something. Firefox is a capable browser that continues to be enhanced. A number of folks spent a good deal of valuable time writing code and testing it to produce my free Firefox. Likewise, the investment of talent, money and other resources to produce Google and related products like Google Earth can hardly be imagined, but Google and Google Earth are still free.

It has been well-publicized that many venerable members of the print media are in trouble because of a decline in advertising revenue. Some newspapers, like the Rocky Mountain Times, have folded, and some publications such as PC Magazine are available only online. The reasons for the problems in the print media are easy to see. News about almost any event, large or small, is available on the Internet as soon as it happens, and sometimes news, like the death of Michael Jackson, is announced on the Internet even before it is officially announced to the media. Why wait for the morning paper, when you can get the latest news immediately on the Net?
Clearly, too, advertising on the Net, one of the ways that free sites can make money, cuts into advertising in the print media. The Net is richer in commentary and back stories than any newspaper, though not necessarily as reliable. Moreover, I can target news on the Net, e.g., I can seek information only about stem cell research, something I cannot do as completely or as successfully with a newspaper or magazine, or I can read only news and comments that agree with my political philosophy. And, of course, I can do all of this for free, so why should I subscribe to say the New York Times? In fact, I do get the Sunday Times print edition for reasons outside the scope of this article. I also think the print media is far from dead, but it needs desperately to adapt to the new realities.

But I digress. So if so much is free, how do those who give stuff away make money? First, a basic truth is that many of them don’t, as the dot-com bubble showed us. Some, as already noted, make money from advertising, though not necessarily enough to pay their bills. Some give away a stripped down freebie in the hopes that you will be impressed enough to pay for the premium version. In this case, those who pay are subsidizing those who are happy with only the free version. Google, for example, charges a substantial amount for a souped-up version of Google Earth which can be used for a variety of purposes such as market planning.

Some freebies are developed by those who truly believe that information should be free and are willing to share their time and talent for this cause. Linux is of this ilk, although one can pay for extra services available from such companies are RedHat. And some give freebies in the hopes of getting paying customers in some other way. Thus, a band might give away an MP3 version of a song on its latest album, hoping that it will boost sales of the album. Or a comedian might put a sample routine on YouTube hoping thereby to attract paying gigs. Or someone might start a blog hoping to get a book contract or paid speaking invitations.
To say that using free as a business plan is highly speculative is, in my opinion, an understatement. Just as there are precious few writers who can make a living with writing, there are, I believe, precious few human beings that can make a living by giving stuff away.

And, yet, the trend may be toward more and more free stuff because the competition is so intense. Ever greater competition usually drives prices down. If the proposed free Google Chrome OS is at least as good as Windows, Microsoft may be in deep trouble.

Indeed, a successful product, even a free one, often attracts a crowd of imitators. This is particularly true with the Internet where the cost of entry is usually low, much lower say that starting a new airline, and where there are so many people who think they can do it better. It is, however, only the first company that successfully markets the product that comes out ahead, and all the rest keep playing catch-up. It is not that the product with the large market share is necessarily better. Bing, for example, may be better than Google. But the market leader has obtained wide use and distribution, as well as perhaps many people developing add-on products and services. If you think that Windows is the best possible operating system, I have a bridge in Brooklyn I want to sell you. But Windows will be dominant for some time because of its current huge market share. Maybe, however, when Nirvana comes, Microsoft will have to give it away free just to stay in business.

The Rev. Dr. Michael Gemignani, an attorney and Episcopal priest, is also a former professor of computer science who has written extensively on legal issues related to computers. Although he is now retired, he enjoys writing and speaking about computer law and security. Contact him at with any questions or comments about this topic.