Free, advertising based

Free is of course never free. Some party has to bring in the money and therefore many companies that rely on a free business concept involve a third player into their ecosystem. The free product or service that is offered by the company will in many cases generate an audience of customers. This audience can then be sold to an advertiser that is willing to pay for the attention of these clients.

Many businesses use advertising as a way to generate a secondary revenue stream. By selling the attention, companies can ’subsidize’ their primary business. This leads to higher profit margins and/or a lower price for the customer. Many media companies like magazine publishers use this form, keeping the subscription fees at reasonable level. However, a free advertising based business system doesn’t charge anything to its clients. Advertising becomes the primary revenue source.

In the media world free newspapers are a good example of products that rely on this concept. Customers receive the paper for free, and their attention is sold to advertisers that are willing to pay for their precious reading time.

In the visual representation above a regular product is used, but often it is a service that will be offered for free. Many web 2.0 services and companies have no other income what advertisers are paying them. But together with the web 2.0 bubble the critique on this model is growing. If a start-up today relies solely on ads to make a profit, then they make themselves very vulnerable as many companies in recession will confirm. According to Bizak (2008), 58% of all internet start-ups rely on advertising as their primary revenue model.