These days we are seeing a broadening of the field of free business, meaning the provision of goods and services free of charge. One factor behind this development is the emergence of a new business model that goes beyond the traditional approaches to offering products and services for free.

Up to now there have been two principal models for free business. One was the provision of free samples of products like cosmetics in the hope that consumers would try them, like them, and come back to buy the product in question. The other was the model used by free papers and other media: These are offered to the public at no charge, and the providers make their money by including paid advertising from third parties.

The new model for free business is the "freemium" approach. The word freemium is a coinage made up by combining free and premium. For the most part the freemium model is applied to the provision of services over the Internet: The basic version of a product or service is provided free of charge, and a higher-value-added version is offered at a price. The income earned from sales of the value-added version to paying customers is used to cover the costs involved in creating and supplying the basic version to nonpaying users. One concrete example is the service of showing connections for travelers using public transportation: The basic information on when and where to change trains in order to get from one location to another is offered free of charge, but users must pay if they want supplementary information, such as the scheduling of earlier or later trains.

The freemium model has arisen thanks to the advances in digital technology, which have caused information-processing capability, memory capacity, and communication bandwidth to increase tremendously, pushing down the cost of copying and distributing digital content in large volumes to the point where it is negligible. This is a business model that exists only on the Internet; in the world of physical business it is difficult or impossible to achieve such low costs, and so the model is simply not practical.

In the world of the Internet, further advances in digital technology can be expected to lead to further expansion in the use of the freemium model. At the same time, however, given such factors as the relatively low cost of entry, sooner or later the market may be overflowing with free content, with the result that just offering a product free of charge will not be enough to get people to use it unless it is especially attractive in some way. This will make it all the more necessary for businesses to grasp consumers' needs accurately and develop and supply better products to meet these needs.

In the case of digital content that is good enough to attract consumers, the key questions will be how far to go with free supplies of the basic version, where to set the cutoff point, and how much to charge for the premium version. Coming up with the right answers will make the difference between success and failure under the freemium business model.

(Michiko Imuta)