How to: Run a Successful Business by Giving It Away for Free

by Leigh Shulman Apr 28, 2011
Duck egg economy. Freeconomics. Whatever you call it, you, too, can make money by following the seven simple principles of Free.

Google. You Tube. Ben & Jerry’s free cone day. Skype. All provide free services with no strings attached. You can check your e-mail, eat ice cream and talk to your parents who live five thousand miles away all for the low price of nothing. But how does one run a profitable business by giving away your product? Sure, you engender good will and happy customers, but if they’re not paying you, you won’t be able to keep your business alive.

Or will you?

How I Got A Lot Of Free Stuff

This past February, I visited New York City to film for an episode of House Hunters International. Yes, we just bought a house in Argentina that is the basis of the Cloudhead Arthouse, where we host residencies for traveling artists. House Hunters paid for our tickets to New York. The show itself will highlight the work we do and give us some free marketing. In exchange, we agreed to be part of their program.

I’ve received over three thousand dollars worth of stuff plus an unquantifiable amount of publicity and marketing without paying a single cent.

The filming took only one day, but I spent three full weeks in the city spreading the word about our fledgling company. I attended Social Media Week events, met other travel bloggers and made more contacts and connections than I would have had I stayed in Argentina.

Three of the people I met while in New York run companies that rely on a free business model, and they not only make money but are highly successful in doing so. I wanted to know how to do this for Cloudhead. What better way to research than by writing an article?

When I mentioned this article to my friend Lisa, who works for Hyperion Press, she gave me a copy Free: How Today’s Businesses Profit By Giving Something For Nothing written by Wired magazine’s editor-in-chief Chris Anderson. I refer to the book consistently throughout this article when describing the different types of Free economic models.

So far, I’ve received over three thousand dollars worth of stuff plus an unquantifiable amount of publicity and marketing without paying a single cent.

Still, travel and books don’t fill a bank account, pay for new software or painting supplies, so how does one gain profit with Free?

Three Case Studies

1. Openhouse Gallery

What They Do

Openhouse is a pop-up gallery and event space located in downtown Manhattan’s SoHo neighborhood.

I happened upon the gallery after dim sum in Chinatown. As I trudged through the freezing cold February afternoon, I peered in the window to see what looked like a park. People sat on benches, lay on the grass. One couple spread themselves out on a blanket where they had a picnic. It was warm with incense lightly burning, making it smell heaps better than any NYC park in the summer.

“This cannot simply be described as an event space, “ explains Jonathan Daou, the founder of Openhouse, “but as an aquarium. Each project evolves from the space which begins as a blank canvas for other people’s ideas.”

What You Get For Free:

Events and exhibits at the space are free and open to the public and are designed to reflect the needs of the community. The indoor winter park, for example, illustrates how this works. Daou recognized that people were feeling a let down after New Year’s eve. “There’s not a lot going on. People want to hide from the winter. They can do so in our park.” When he saw how much people loved the park, Daou decided to keep it open an additional two weeks.

Free Model They Use: The Three Party Market

In short, advertising. You pay nothing, because someone else — the Third Pary — sponsors the event.

Openhouse matches advertisers specifically to the event or exhibition. A climbing wall can be sponsored by a gym. The winter indoor park can be sponsored by fake grass or lawn furniture manufacturers.

They also tend toward local sponsors, keeping the audience in mind when choosing sponsors. “When you have a big name stamped all over the walls, people feel like the event is for the sponsor. This isn’t for me. This is for Purina.” Thus, the audience shapes branding instead of the other way around. “People are tired of being sold to all the time, and brands are searching for a way to be relevant without manipulation.”

2. Wix

What They Do

Wix is an online website design and hosting company based in Tel Aviv and New York. They provide support and tools to create your website, including e-commerce, Flash and design.

I learned about the company when I attended a New York Social Media Week event at Wix Lounge, the brick and mortar counterpart of the Wix website, located near Union Square. I visited again later that week and had a chance to chat with Victoria Monsul, the lounge’s manager and event curator.

What You Get For Free

Wix Lounge opens every weekday and can be used as your personal office. There you’ll find not only free wifi and particularly good coffee but a community of other freelancers. There’s a message board on the wall where you can post your card and information about your services or perhaps find resources for your own business. After Wix office hours shut, the loft space opens for nightly events, also provided as a free service on the condition that event planners, who would normally pay $5,000-10,000 to host an event in a similar location, do not charge a fee to attend.

The Wix website offers a free Flash website you can use for your company or freelancing business and the Wix online Support Bar where you can sign up for a pro-to-peer consultation session to help you design your own website strategy.

Free Model They Employ: The Freemium

Wix’s free websites include the Wix name in the URL. Should you prefer not to include their brand on your website, you pay a competitive rate for their premium hosting services. Generally, five percent of users are premium users. The $8.95 per month they pay to host, design and support their websites allows the the rest of us to enjoy Wix for free.

3. Help A Reporter Out, aka HARO

What They Do

An online-only site where reporters find sources for articles, and sources benefit from free PR and marketing for their companies. The HARO tagline? Everyone’s an expert at something.

I’ve known HARO’s founder Peter Shankman for years. We originally met at the 1996 Republican National Convention and have been friends ever since. I learned of HARO through Peter’s Facebook page.

What You Get For Free

You get free publicity, marketing and potential contact with over 30,000 members of the media, including magazines, newspapers, television, radio and book publishing.

As a reporter, you fill out a simple form on the website with the details of your query that then goes out to a listing of over 100,000 sources with plenty of time to meet your deadline. Should you find yourself last minute needing a source, HARO’s will tweet out an urgent request to almost 40,000 followers.

As a source, you receive three daily e-mails with reporter queries. You pitch them. Should a reporter use your information, you’ve just found yourself free PR and marketing in magazine, newspapers, television, radio and book publishing.

Free Model Used: Third Party Market & Nonmonetary Markets

Each of the daily e-mails sent out to potential sources contains one text only advertisement at the beginning of the e-mail. The beauty of HARO is the people receiving the e-mails tend to be highly motivated business people and public relations experts who are more likely to pay for a service endorsed by HARO that will potentially help their business. Many advertisers offer discounts specifically for HARO members.

The Non-Monetary part of the equation is the marketing, contacts and reputation building that goes hand-in-hand with working with reporters as a source.

I’ve been using HARO for almost two years and have been interviewed for articles for many media outlets including Parents Magazine, MSNBC, Mashable and AOL. Each article brought thousands of hits to my personal blog. In addition, I’ve developed working relationships with reporters like National Geographic’s Christopher Elliott and the Wall Street Journal’s Elizabeth Bernstein.

Read on to see how you can make Free work for you.

Making Free Work For You

Free is not a new idea. Chris Anderson’s book Free traces the history of free back as far as the late nineteenth century when US saloons began offering free lunches with the purchase of a drink. Today, we see Free work spectacularly for companies like Google and YouTube. But those were the first.

Now, people are somewhat more free-savvy, so we can no longer rely simply on the thrill of getting something for nothing to propel people toward our business, product or service. How many Googles, Flickrs and YouTubes can exist? We need to be more creative in order to stand out in the Freeconomy.

The Seven Basic Principles of Free

A Public Face You Trust To Put Your Needs First

All three of the businesses mentioned actually hear and respond to the needs of their potential customers. When I mentioned Cloudhead to Victoria at Wix, she pointed me to several fund raising resources, many run by other Wix Lounge users.

Jonathan Daou guides Openhouse based on what his audiences tell him.

And Peter Shankman advises in his book Customer Service: New Rules for a Social Media World that “we don’t listen anywhere near enough. And not listening is the leading cause of failure in today’s economy.”

Business and Friendship Overlap

When you listen to your audience, they develop a connection with you that goes beyond simple economics. Would you rather buy a car from someone you know or someone whose name you find in the yellow pages?

When you offer a free service, no strings attached, no purchase necessary, you engender good will. While that alone won’t plump your bank account, it will encourage a potential to become an actual customer.

Money Is Not the Only Capital

My friend Fiona calls this a Duck Egg Economy. Fiona lives in the Welsh countryside and keeps ducks. She hates the taste of duck eggs, so she gives them to her neighbor. Every few weeks, her neighbor brings her homemade cake, cookies or some other thing she’s made herself. Since Fiona doesn’t cook much, these baked goods mean far more to her than the duck eggs would, even if the actual monetary value of the eggs outweigh the value of the cake.

What is your product worth to you and what are you willing to trade for it?

Always Keep An Eye To What You Can Give In Return

A colleague of mine recently complained to me that he had been trying to connect with other blogs so they would include his website in their lists of recommended links. He’d write to them, explaining how his content is perfect for their audience, how they should include him in their links yet found himself stonewalled at every turn.

I asked him what kind of relationship he has with the authors of those blogs. None.

I suggested he shift his focus. Let’s face it, adding his link to their pages benefits him more than it does them. How can he offer them something relevant to their work that goes beyond simply the benefit of his link? Would he be willing to write a blog post for them? Does he comment on their site? What else can he do to help them?

When you listen to your audience, they develop a connection with you that goes beyond simple economics. Would you rather buy a car from someone you know or someone whose name you find in the yellow pages?

No Strings Attached Means No Expectations

Free brings eyes to your website and bodies to your brick-and-mortar, but you cannot demand a return on what you give.

While in New York, Peter and I met for dinner, and he gave me a copy of his Customer Service book. He knew I might use it somewhere in my writing or recommend it to others, but he also knows there was a possibility the book would end up unread on a bookshelf somewhere.

It’s a question of averages. The majority of your free users won’t ever buy anything, but you don’t need the majority to open their wallets. You only need that small percent to buy. If you find not even the five percent are buying, then it’s time to rethink your particular model. Which brings me to my next Principle of Free.

Free Is Self Propagating

All three of the businesses mentioned in this article grow by word of mouth. You won’t see advertising on TV or on Google Ads. You will see them pop up in articles like this one and on personal web pages. People share what they like. People share what makes them happy. And people love to talk.

Transparency Is Key

People generally distrust Free. Tell someone you’re want to give them something for free and see how many respond with an automatic “There’s no such thing as a free lunch.” The general feeling is eventually, you’ll have to pay. Somehow.

Victoria Monsul shared that it took three months after Wix Lounge first opened for people to come in and not feel like someone was going to trick, hurt or steal from them. “They looked at me like I was Satan,” she says. When Peter Shankman sent out his first Good Karma letter to 150 reporters offering to connect them with sources, he immediately received ten e-mails from people asking “Why are you contacting me? You must want something. Don’t e-mail me again.” Jonathan Daou experienced a similar response. “People are tired of being manipulated. They don’t trust that anything can be for free. People walk to the door and feel reluctant to enter, as if they’re not supposed to be there.”

You can circumvent this automatic distrust by explaining up front exactly what the catch, if any, will be.

The Bottom Line

I learned a lot from talking to Jonathan, Victoria and Peter about how to develop and manage Cloudhead. But our discussions were not just about work. We talked philosophy, life, personal aspiration that for me went far beyond an informational question-and-answer session for an article. I truly respect them, not just for the work they do, but for their general outlook and philosophies. I hope to meet them all again soon.


Have you used Free to benefit your own work or business? Share your experiences, tips and questions in the comments below.

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