Sometimes Freeloaders Pay Too...

Tuesday, May 5, 2015

Freeloaders often get a bad rap in the business community. They benefit from products and services without paying.

In some cases, a freeloader does not actively increase the cost to the producers. For instance, a person sitting outside a music hall could easily listen to a symphony without causing the musicians to perform additional work. In other cases, such as the hosting of applications on cloud services, freeloaders do add to the total cost which must be born by the producer. Nevertheless, producers often do provide their wares for free in the hope that they can convert non-paying users into paying customers. As the number of freeloaders (who have no intention of ever paying) on a free service tier increases and the number of users who are likely to convert decreases, many businesses will choose to eliminate their free tier. This is often a bad idea.

Sometimes freeloaders benefit a company - even though they don't provide any cash directly. Case in point - me. Yes, I'm a freeloader. Those who have discovered my soft launch into the world of website pitch critiques know that my YouTube channel is deliciously free of advertising and I'm not paying a cent to YouTube either. However, I'm still bringing value to the corporate behemoth in other ways.

YouTube benefits when the masses conflate its name with the word videos. Though my channel is still very small by any standard, every video that is uploaded to a competitor represents a small chip in YouTube's image and a reduction in the site's ability to own that word. Conversely, each time a visitor spends time on my channel, YouTube's reputation as the video site is strengthened (albeit in a very small way).

Many business consultants and analysts use fancy terms like customer lifetime value (CLV), but income flows only describe part of the picture. According to these people, all freeloaders have a negative customer lifetime value, but we know the truth. Even those who don't pay can benefit a service provider.

Want to learn more about how software economics works? Then you'll certainly want to check out my software pricing book!