In a post written a couple days ago, I took a poke at “free” business models and cited the success of WatchDox launching its secure file-sharing service with a premium price tag.
In that post, I wrote:
At best, free is a marketing strategy, although typically not a well understood one.
Having said that, I thought it reasonable that I give an example where I think “free” makes a lot of business sense. That example came to me as I was working with Guidewire Group client MyOwnRealEstate.com on its pricing model.
For those of you who missed the company’s product launch at DEMOfall, MyOwnRealEstate is a property management and tenant communications platform offered as a Web-based service. The product is aimed at the sweet spot of professional rental property owners with 3 to 50 units under management. For those customers, M.O.R.E. charges a modest per-unit-per-month price that is easily absorbed into the monthly rent.
But what about the million-plus property owners who are renting the other side of their duplex or leasing a second home? They account for a significant portion of America’s housing stock, but frankly they are the hard-to-find customers who would cost so much to reach that they’d not prove profitable until well into the second or third year of service, a contract term they’d not likely sign on to.
My advice to the company was a seeming contradiction to my “free isn’t a business model” campaign: give them the software for free. If you own or manage two or fewer rental units, you can use myownrealestate.com at no cost.
The reasoning: While some of these customers might pay – if you could find and market to them, most would not. However, each of these units touches a few tenants who will be introduced to the product and who may begin to ask about it when they move on to their next rental. It’s a slow word of mouth campaign, but it is some value exchange. Moreover, real estate professionals talk and a few champions using the service will begin to lift page rankings and otherwise build awareness of the service within the real estate community. And, once in a while, little real estate moguls become bigger real estate tycoons, taking their practices and tools along with them.
It’s small stakes, to be sure, but stakes easily given away because the marginal cost of serving these customers is very low and the price of capturing them is extraordinarily high.
Meanwhile, the customers with the incentive and the cash to pay for the service receive the equivalent of a modest discount (first two units manged are free). It’s a win all the way around.
