Venture Capitalist Bill Gurley has a number of articles discussing the concept of free as a disruptive price. In Google Redefines Disruption with the “less than free” business model he explains in some detail how the company will change the market for in car navigation (and other stuff) by providing software to device manufacturers for free AND sharing subsequent Ad revenues with them.
The full article is well worth the read, but here’s a selection of quotes.
“I like to think of myself as an aficionado of business disruption. After all, as a venture capitalist it is imperative to understand ways in which a smaller private company can gain the upper hand on a large incumbent. One of the most successful ways to do this is to change the rules of the game in such a way that the incumbent would need to abandon or destroy its core business in order to lay chase to your strategy.”
“As we noted in our take on the free business model, “if a disruptive competitor can offer a product or service similar to yours for ‘free,’ and if they can make enough money to keep the lights on, then you likely have a problem.”
“Another perhaps even more important factor is that when a product is completely free, consumer expectations are low and consumer patience is high. Customers seem to really like free as a price point. I suspect they will love “less than free.”
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