The Free Economy Model - Winamp Media Player

In an article entitled “Free! Why $0.00 Is the Future of Business” Chris Anderson thoroughly discusses the emergence and development of the “economy of free”. Since King Gillette made a marketing revolution in 1903 by giving away free razors and making profits of the sale of blades a lot of things have changed. We are now living in the technological era, the era of falling costs, the era when free is no longer a benefit but a must if you want to attract consumers’ attention and remain competitive in the market. However, when we are talking about “economy of free” and giving away products for nothing, the question “So how do these businesses make profit out of it” arises naturally. This question has no one simple answer, there are many different ways in which marketers can turn free into profits. If we take media, for example, they are all technically free from radio and TV to magazines and newspapers (even though they charge a price it is much lower than what it actually costs them to make and distribute the products) because they are not selling media to people but rather selling people to advertisers. So there is still someone paying the bill, it’s just not the consumer any more. Chris Anderson breaks down the priceless economy in six broad categories: freemium, advertising, cross-subsidies, zero marginal cost, labor exchange and gift economy.

The term “freemium” refers to free software, services and sometimes content. This is the basis of the subscription model of media and is one of the most common business models. It can take a range of forms: varying tiers of content, from free to expensive, or a premium "pro" version of some site or software with more features than the free version. Sites centered on that model follow the one percent rule – one percent of users support the rest or in other words the revenue generated by one person paying for the pro version allows 99 people to use the basic version for free. The reason this works is that the cost of serving the 99 percent is close enough to zero to call it nothing.

Advertising is part of the free economy in the sense that advertising dollars give media providers the opportunity to distribute their content for free or at a very low cost.

The third category, cross-subsidies, includes any free product or service that entices consumers to pay for something else. An example Anderson uses is cell phones. Your cell phone company may not make money on your monthly minutes — it keeps that fee low because it knows that's the first thing you look at when picking a carrier — but your monthly voicemail fee is pure profit.

With the zero marginal cost model things that can be distributed without an appreciable cost to anyone are free. A good example of that would be online music – with digital reproduction and peer-to-peer distribution, the real cost of distributing music has truly hit bottom.

Labor exchange provides free access to Web sites and services. With this model the act of using the service creates something of value, either improving the service itself or creating information that can be useful somewhere else.

With the gift economy everything is free whether it be open-source software or consumer generated content. Why? From pure altruism – it has always existed, but the Web gives it a platform where the actions of individuals can have global impact. In a sense, zero-cost distribution has turned sharing into an industry.

A good example of a product that is riding the wave of free is Winamp Media Player – Windows Media Player’s biggest enemy.

Looking back at the six categories described above it probably best fits under the definition of a freemium. It has both a free basic version and a pro version that gives users more capabilities and costs just $19.95. But selling the pro version is not the only way in which Winamp makes profits. It also makes good use of advertising in several ways. First there are different skins (the way the player looks; the mask of the user interface) that consumers may choose for their player. This is a good way to give users the opportunity to personalize their media player and also a great way of prompting Wii fans, for example, to state their passion for the game in yet another way – by downloading the Wii skin free. And while the skin is free for the user, it is definitely not free for Wii. Another way in which advertising is present on the site is through banner ads and sponsored content. Winamp also makes good use of altruism and people’s desire to create things and see them being used. The media player gives people the opportunity to develop their own skins and plug-ins that can be then downloaded for free. These plug-ins, designed to improve the consumers’ experience, range from APS presets to games to language packs.

The Web site also serves as a portal to different types of content. It offers an Internet radio powered by SHOUTcast, free music and video downloads powered by AOL Music & Spinner, free movie downloads powered by Moviefone and free game downloads powered by AOL Games and Game Daily. There is an assortment of games that users can choose from including games for PSP, Playstation, Xbox and Xbox 360. If you would like to download a game in any of those categories you are transferred to either the AOL or Game Daily Web sites.

Realizing that consumer experience is everything, Winamp has also created a community on its site. Under the community page, people can browse through different forums, ask for help or choose to become Winamp affiliates and spread the love for the media player. They can do that by either linking their own sites to the Winamp site or by manifesting their love through branded T-shirts or stickers.

It seems this free model is working well for Winamp and is helping it create a loyal consumer base with over 250,000 members to its site and nearly 2,200,000 posts on its forums.