INSTANT MBA: Giving Your Product Away For Free Beats Lowering Prices

Eric Schmidt


Today’s advice comes from Eric Schmidt, ex-CEO and current chairman of Google.“Free is a better price than cheap. And this simple principle has been lost on many a business person. There are business models that involve free with adjacent revenue sources.

And, in fact, free is a viable model with branding [advantages], [charges for] service, and other things. But it’s a different business model from what most of us are used to.

A rule of economics is that for manufacturing and mature businesses, eventually the price of the good goes to the marginal cost of its production and distribution. Well, in the digital world, for digital goods, the marginal cost of distribution and manufacture is effectively zero or near zero. So, certainly, for that category of goods, it’s reasonable to expect that the free model with ancillary branding and revenue opportunities is probably a very good thing.”

Want your business advice featured in Instant MBA? Submit your tips to [email protected]. Be sure to include your name, your job title, and a photo of yourself in your email.