Giving away a free product or service is one of the most powerful techniques for customer acquisition. The success of this technique can be seen with the example of companies like Jio, Instagram, Spotify, Shazam, Twitter etc.
The key to doing Free or Freemium business models right is to ensure that the product/service that you are giving away free is of very high value to the customer, which should result in both high customer satisfaction and a likelihood that they will tell others about your product/service, leading to viral effects. The usual temptation is to stop short of this, and take out the valuable features that would make the product interesting and valuable.
The importance of Footprint or Market Share
A powerful effect of using the free strategy is that it usually results in a far larger customer base using the free products, who become proponents for your company. This expanded footprint or market share can have a huge effect on the price that acquirers or investors are willing to pay for your company, as they recognize that even though these customers have yet to be monetized, they represent a great potential for future monetization. Twitter and Facebook are two perfect examples of this.
Another way of looking at the importance of footprint or market share is to recognize the importance of market leadership. In the tech industry, market leadership is usually self-reinforcing unless the company does stupid things to annoy its customers. Even if you have gained market leadership by giving away a product/service for free, the financial markets and acquirers realize that market leadership is worth a significant premium over niche players that may have more revenue.
The entrepreneurs and executives that fall into the “wrong” camp, are so focused on trying to extract the maximum rupee out of every customer, that they fail to realize that this only leads to very slow (and usually expensive) customer acquisition, and consequently a small footprint or market-share.
Dhruvesh’s Blog 