Free: The Price Point of Billion Dollar Websites

Free, it’s a price point – nothing more and nothing less. To be a sustainable business, any free product or service must lead to revenue from other sources. Nonprofits collect donations, short term giveaways acquire long term customers, and truly free for profit products generate revenue from complimentary products or services (and no tech giant is a service company).

With the free price point, tech is booming. In order, the most visited websites in America: Google, Facebook, Yahoo, Amazon, and Bing. With the exception of Amazon (see below), Facebook, Google, Yahoo, and Bing thrive on a user base of paying customers well, well below 5%.

I have a degree in economics. Statistics professors always say, 5% margin of error secures the reportable confidence interval. But when it comes to billion dollar websites less than 5% is not your margin of error, it is a too high percentage of paying customers. You could say, that this just means that paying is an error (you hipster!), but the reality is, we are in an age where it is easier to create a billion dollar website if over 95% of users are free than it is if over 5% of users are paying. Quite simply, the economics taught in universities have not caught up to how the Internet has changed the mathematics of money (we could spend the rest of the day discussing Bitcoin – but for now – I’d like to forget about the blip of ‘we don’t need the standard currency model,’ and focus on the significant disruption that has actually already occurred with free users dominating the most visited sites’ user bases).

Most of the tech sector will tell you, “With Facebook you are the product.” And it has merit; by using Facebook, Google, Yahoo, and Bing most users submit their user information and consumption inclinations. In my industry, recruiting technology, the submission of information (professional data) and inclination (“I’m Interested.”) to the business is a free service we provide to the vast majority of our millions of monthly pageviews. But our competition fears SmartRecruiters because our recruiting software is entirely free to small business. What people will be talking about more: free business facing interfaces, which have started with most visited websites, and are trickling down to all walks of business software.

The ad platforms of Facebook, Google, Yahoo, and Bing are free enterprise SaaS products. They are self-service and consistent across their user base.  Anyone can bid on search terms or promote a post. Try using an ad platform that isn’t Facebook’s Ad Manager, Google’s Adwords, Yahoo’s Marketing Solution, or Bing Ads – and what do you find? – more often than more often than not, not only do you pay for the ads, but you also pay to use the ad platform (talk about cutting into your marketing spend!?).

If Google Search and Google Adwords were two separate companies, you would say that Google Search is a for profit company that surfaces the smartest and most relevant pages – for free – based your keyword search (while selling customer leads to Adwords). Functionally, Google Search falls into the category of for profit products that generate revenue from complimentary goods.

When a website is able to help you discover the goods you need, and facilitate the purchase of these goods, that website is making seriously substantial revenue on every transaction. Which brings me to my final free web giant, Amazon. You may say, “The goods of Amazon are not free,” and I think, what goods of Amazon? For the most part, Amazon sells goods it does not make, ship, or store (yes they have explored all these areas, but it is not their primary business). Amazon’s primary function is to serve you the best goods and facilitate payment.

Your entire business can live online. You can be a billion dollar website by just being a website. Like most economic decisions it comes down to two points, quality and price. (1) Is your website the most awesome at creating and satisfying customer demand for a good and/or services needed? (2) If the answer is yes, does it do so at the lowest cost? Once the price point is free, you only have to worry about the first question, is my website the most awesome?