The Economics of Free
Network Effects and Free Growth
Free access can build large user bases, and once many people use a service, it becomes more valuable to each of them.
Free helps build a crowd.
Network effect
A messaging app is more useful when your friends use it.
Critical mass
Free access helps reach the number of users needed for a service to take off.
Winner takes most
Once a network dominates, rivals struggle.
Monetise later
Firms may add charges or ads after establishing dominance.
A messaging app
People join because their contacts are there, so a new rival struggles.
Believing a free app will stay free forever
Business models change.
Key takeaways
- Networks grow in value with users.
- Free access builds critical mass.
- Leaders often dominate.
- Monetisation may come later.
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