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The hidden cost of "free"

Keith Stacey

The most powerful word in the English language is ‘free’. People love a bargain and if it’s free - then bargain it must be. ‘Free’ triggers a range of emotional responses that seduce us into suspending our critical judgments.  

A recent national wine promotion had……wait for it - a free set of steak knives. Did I refuse them on the grounds that I knew that the price of the wine included the knives (judging by their quality, not much)? Of course not and they sit unused in my cutlery drawer.

Over the years many of us have experienced the truism that “there is no such thing as a free lunch”. We are hard-wired to practice reciprocal altruism and accepting a “free lunch” can place us in a vulnerable position when we are later asked for something in return.

This explains why several major companies in Australia have recently announced that they will neither offer nor receive corporate hospitality.

After years of being bombarded with free offers (that aren’t) most of us have adopted a healthy level of skepticism. Of course this has not saved many investors who thought they were getting ‘free investment advice’ which was paid for by trailing commissions. Recent scandals in the home loan broker sector tell the same sorry tale.

However the Net has provided a whole new galaxy of free products and services. Facebook, LinkedIn, DropBox and Password 1 are but a few examples. These services are genuinely free. They cost you nothing to participate.

In dollar terms they are free, but of course, it takes time to be active on Facebook, to upload content of interest to others and to read their posts. If you placed a dollar value on the time you use to provide content and links to these sites, a new perspective emerges.

The more members a site has, the more value it has.  The ubiquity of Google as a search tool explains in part the incredible value of the company.

These companies have developed a new business model called the ‘Freemium Model’. They provide a genuine free service where people become members and then they are offered add-ons and additional services for a cash premium. The base model provides the customers and the premium services provide the revenue.

So next time you sign up for an amazing ‘free service’ think again about how much time (and the value of that time) that you will spend using the service and providing content for others. 

Share your experiences of ‘free'.

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