Free Entry Business Model

Free Entry Business Model

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I was reading an interesting debate today on how apparently a lot of businesses that use a free to use model while charging for premium services can usually make more money than ones that charge the fee upfront. Example, imagine using a community site where it is free to interact with others but costs money to say spruce up your profile. This is compared to say a community site that simply charges you one monthly fee upfront to use everything.

I guess the simple explanation is that there are more odds that the free method will allow you to potentially create a bigger pool of people who could potentially spend money. Example, one place with 150,000 people that spend only $5/month versus a site with say 50,000 that spend $10/month. I’m always surprised at the things people pay money for.

Example, in some sites you can send people “virtual gifts” that cost one real dollar. Sure enough, millions of people do it all the time. Sure makes you think if you are trying to create a business that revolves around social interaction and entertainment.

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