Giving Handles, Selling Blades

(or, How to Make Money by Giving Free Stuff)

I just bought my first iPhone last week. Since then, my continuing odyssey through the wonderful world of the iPhone App Store has inspired some musings on why free apps (and other free products) can be great money-makers for an organization. Absurd, you say? Let me explain with an example.

One application I have downloaded is RunKeeper Free, by FitnessKeeper, Inc. The app uses the iPhone's GPS and a timekeeper to record distance, duration, pace, and speed. RunKeeper Free also provides me with a Google Map of my route, plus allows me to save my run history to the app and/or to the RunKeeper website, where I can also view Calories burned, elevation, and start/end times for each activity in my history. And, of course, because of the iPhone's multitasking abilities, I can also listen to my tunes while RunKeeper tracks my workout.

FitnessKeeper, Inc. also offers a paid version of the application - the RunKeeper Pro. For $9.99, the RunKeeper Pro provides the same features as RunKeeper Free, as well as audio cues, training workouts, iTunes playlist integration, the ability to post geo-tagged photos and status updates, and integration with social networking sites. The RunKeeper Pro also runs without the small, silent, inobtrusive ads contained in the free version - ads which, incidentally, I did not even notice until their absence was highlighted in the description for RunKeeper Pro.

A download button (linked to the iPhone App Store) for the RunKeeper Pro is included on a screen within its free counterpart.

So, if FitnessKeeper, Inc. offers a robust $10 application, why do they also offer a free version? Won't the free version cannibalize the paid version? Would anyone pay $10 for the Pro version when he can get the most valuable features for $0 with the free version?

The answers to the last two questions are "probably not," and "yes," respectively.

iPhone users who would download the free version (me, for example) would probably only download an app like this if it were free. If the only version available were the paid version (or the $10 paid version anyway), such users would probably decide that the app was not worth downloading after all. They would choose another, free, app, or no runner app at all.

Some iPhone users will download the $10 RunKeeper Pro right off the bat, even though they know that a free application with most of the same features is available. These users are probably either hard-core runners (possibly), exercise-motivation-seekers, or gadget aficionados (most likely). To these users, it is worth $10 for audio cues, pre-programmed workouts, playlist integration, photo-sharing, and social networking features unavailable in the free version. Thus, offering the RunKeeper Free does not steal the business of these paying customers.

Still other iPhone users will download the RunKeeper Free, and later decide to upgrade to the $10 RunKeeper Pro. Perhaps they loved the free version so much that they were ready to try the paid version. Perhaps their curiosity got the best of them, and they just had to try out the additional features. Or perhaps they developed into such avid runners that they came to see the RunKeeper Pro as a good buy.

Whatever the reason for the upgrade, the RunKeeper Free paved the way for some prospective paying customers to become actual paying customers. The free version enabled FitnessKeeper to build trusting relationships with potential customers. And it provided opportunities for RunKeeper Free users to show off the app to their running buddies, some of whom might be the types that would purchase the paid version.

And so, one can think of the RunKeeper Free as less of a profit-less product, and more of a marketing tool for the RunKeeper Pro.

It's like the strategy of razor manufacturers. Gillette, I'm told, sends a free razor to young men on their eighteenth birthdays. Those young men like the experience of shaving with a Gillette razor, so they keep coming back to Gillette to buy replacement blades.

Also, free products (or paid ones, for that matter), like the RunKeeper Free and RunKeeper Pro can connect the organization to fans who might also pay money for other items. FitnessKeeper could have among its customers a market for more FitnessKeeper gear, like t-shirts, running shorts, sweatbands, socks, watches, etc.

What products can your organization give away for free? And not just demos or promotional products, but real, useful tools that can benefit consumers and can help you to start building a fan base? Out of that trust-relationship, those fans may become paying customers for your other product offerings. Or, even better, they may spread the word to others like them who become paying customers, too.