Seth On Freemium, Abundance, and Scarcity

Seth Godin has a short but sweet post (the best kind) up on the need to flip the way you think about free, abundance, and scarcity.

Seth was one of the first people to experiment with free and digital media and he has been a longstanding inspiration to me in this way of thinking. During the late 90s, he gave away a number of his books for free in soft copy before the book was published. In doing so, he built up a word of mouth phenomenon that drove the sales of the hard cover when it came out.

Seth has also had a long standing view that interruption based advertising is costly both in terms of media cost and brand cost. He believes that there are better ways to get people's attention and that giving things away for free is among the best of those ways.

This paragraph from his post that I linked to above outlines the basic idea:

We spent a generation believing certain parts of our business needed to be scarce and that advertising and other interruption should be abundant. Part of the pitch of free is that when advertising goes away, you need to make something else abundant in order to gain attention. Then, and only then, will you be able to sell something that's naturally scarce.

I like his example of Lululemon's free mass yoga events in Bryant Park. I bet that does sell a lot of yoga clothes.


Comments (Archived):

  1. Vladimir Vukicevic

    This model has been around in some service industries for decades – i.e. management consultants giving lectures, workshops, etc. for free to drum up credibility and reach a wider audience. I don’t understand why it’s so revolutionary, especially for digital goods.

  2. David Semeria

    Seth starts out by saying: I think it’s dangerous and often fatal to put free on top of an existing business model. Things fall apart. No argument there.But, as open source software companies are realizing, it’s also not a good idea to give away your most ‘scalable’ product so as to ‘get you to a place’ (your words) where you can charge for non-scalable services (support/customization)Adding one more person to a yoga class involves no marginal cost (assuming you have a big enough room) but the margins on clothes are potentially less than the yoga classes you’re giving away.I don’t think this business model is wrong or even flawed (assuming it doesn’t torpedo other companies trying to charge for products you’re giving away).But I like Microsoft and Oracle’s business models more.

    1. fredwilson

      do you think microsoft and oracle’s business models are sustainable long term?

      1. William Mougayar

        Probably not…until they finish milking the existing model. Hint: Benioff’s call for the “End of software maintenance fees” is a reality.

      2. David Semeria

        Short answer: yes (in a modified form)Less-short-answer: As a Mech. Eng. major you know about damping. The web allowed people to give away their stuff at very low marginal cost, and since doing so got them noticed, they did. The pendulum swung from one extreme to another (ask newspapers). But it’s starting to swing back. This doesn’t mean going back to all-paid, but finding a middle ground: free to try (multiple times) – but if you engage with a product, one way or another you’ll be asked to pay. The amount will probably be a fraction of what you paid in the past, but since there are many more customers (and operating costs are so much lower) it’s not a big deal.The trick is finding a payment method that works. Asking (hoping) people pay for the non-scalable stuff doesn’t make economic sense.

      3. Morgan Warstler

        I think Microsoft could embed a personalized client ad server into Windows 7, and give away a home version for free.They would offer web publishers the ability to prioritze the Windows Ad Network over their own / other ad networks. (if user has WinAds, then x) The advertiser selects their target user base, determines the frequency, and bids. Every user carries a pocket of targeted ads around with them while they surf. The same thing is happening right now with DVRs.My numbers say this pays significantly more than Microsoft makes on the sale.

        1. fredwilson

          Interesting idea

    2. Carl Rahn Griffith

      Nicely put, David.

  3. William Mougayar

    I like this thought. Are there more (tech related) examples?”you need to make something else abundant in order to gain attention. Then, and only then, will you be able to sell something that’s naturally scarce.”

  4. Pet Slin

    You get your history wrong. Giving away free digital products to create demand has been going on for almost 40 years (and for physical products like toothpaste, well over 100 years). It was done during the mini computer years and the early PC years.Fact: Jim Button of Buttonware became famous and wealthy in 1982 by giving away his software for the PC. It was called freeware back then and is the same business model as you describe, and it was well known back then, and back then many other companies did it successfully.Fact: MS DOS was not given away free by microsoft, but copy protection was so shitty back then that illegal, and thus free copies, spead thru computer clubs like wildfire. Well over 70% of the pcs in the early years ran illegal and free copies of ms-dos. This drove Bill Gates crazy but the direct result was that ms-dos became a standard and directly contributed to the microsoft monopoly and fortune (once copyprotection became reliable).I recommend that every VC out there go back and look thru early copies of pc magazine (1981-1984). Look at the classifieds. You will see that a significant amount of companies being funded today were being bootstrapped back them. Geneology? yep. Recipes? yep. Digital Magazines (delivered month)? Yep, and so many more.VCs can learn valuable business lesson regarding their current investment options by looking at the lifecycle what happened to these early companies.cheers,Slin

    1. David Semeria

      Your facts may be right, but your tone is not.

      1. bowerbird

        i rather enjoyed his refreshingly honest his facts were right too. double-bonus.-bowerbird

        1. pet sling

          thank you sir. You are an officer and a gentleman!Pet

      2. pet Slin

        I don’t know what you are talking about. I don’t insult anyone here, I present facts that are true, and I give an honest and valuable suggestion at the end, and I don’t spread misinformation to the detriment of others (poor Jim Button). Plus what I say is basic and common stuff that should not be hard to find if one is intent on posturing historic facts. Don’t get me wrong, it is exceeding fun on occasion to make fun of VCs, but I didn’t do it here.If you want to read bad tone, try going to thefunded and read of the rude and uprofessional and fraudulent ways that many VCs have treated entrepreneurs (and to be fair, vice versa).Dude, lighten up, have some fun, and as VCs tell entrepreneurs, develop a thick skin. Bickering online is a blastPet

    2. andyswan

      FACT: Black Bears are best.

    3. Dave Pinsen

      Interesting. I remember seeing a documentary about the early days of the personal computer business, back when software was written on some sort of paper medium or tape. I forget the details. But it was generally given away free by the tinkerers who wrote it. And Bill Gates wrote an open letter in some industry magazine against this practice (I believe this was in the late 1970s). It’s ironic that despite Gates’s early insistence that users pay for software, pirated copies of DOS ended up helping establish Microsoft’s dominance.

      1. pet

        You sir are also an offic er and gentleman. btw, for the pc world it was 5 1/4 discs

  5. andyswan

    Love it.”Free but expensive” is the holy grail. Bring em in with free, bring in the bucks with expensive.BOTH require awesome products/services. It’s so fun to try to pull it off. I can’t wait, again.

  6. awaldstein

    Funny, I found this post less about free and more about innovation. Or maybe they are the same in some cases. With interrupt advertising passe, how you market is actually part of the product value itself. Lululemon is a textbook Innovation and lifestyle brand, not only free yoga, but invitations to drum circles, and salespeople that are well, honestly enthusiasts of what they sell. Brand=Product=Channel=Marketing in their case.

  7. John Sharp

    We need to stop talking about the “Free” business model, IMHO.Any business thinking of offering a “Free” service needs to have, on their roadmap, the paid extension to the platform that will make the journey worthwhile. Despite all the folks claiming the contrary to be true, “Free” is not a business model. “Free” is a business strategy, not a goal. It is the journey, not the destination.Some more thoughts on this here:

    1. pet slin

      I have heard it said, There aint no such thing as a free lunch.

  8. Cyrus

    A great example of success born from “giving away” your service is Neil Patel’s story about proving to big name websites that he could improve their SEO by doing it for free.

  9. Dave Pinsen

    “During the late 90s, he gave away a number of his books for free in soft copy before the book was published. In doing so, he built up a word of mouth phenomenon that drove the sales of the hard cover when it came out.”Fred, I think James Altucher made this point on the thread of a post a while back, but what you describe with Seth giving away a number of his books is essentially free samples, and that’s not a radically new business model. He still sold the hardcover books.In the case of Lululemon, that was a clever promotion, but they are in the apparel business, right? They still charge for the clothes. Maybe I don’t get this (a distinct possibility), but it seems to be that a better example of Freemium would have been if Lululemon gave away the clothes free, but somehow still managed to make money doing so. Instead, they gave away a free sample of something else (yoga classes) and sold their core product for cash.

    1. pet sling

      Advertising has been the most dominate way for giving away-for-free intellectual property (non physical stuff-idea like humour, news, concepts, music, etc). Think newspapers, magazines, radio, tv (remember, no one looks at a blank newspaper, a blank tv, etc- it’s the non physical concepts conveyed thru tv, radio and print that consumers want). Free newspapers, radio and tv means the consumer is getting entirely for free that which they are consuming-the tru meaning of free.And, advertising has been and is great for society. Without it, there would be no free press- one of the great bastions of a free and humane world (otherwise consumers could not afford to buy news and companies couldn’t afford to make news). Without advertising, dissemination of intellectual property would fall into the hands of goverment and we all know what happens then…think north Korea.Here, it is important to note that prior to the digital world ((that is during the analog era), there were many businesses that could not easily apply a free advertising supported model (that is, deriving no revenue from the comsumer’s use of its products). For example, an accounting department in the 50s could not get or use the tools it needed via newspaper, radio or tv. Instead, you had sheets of paper, ledgers, adding machines, etc. Companies making adding machines certainly advertised, a part of their marketing budget, but the physical product was always purchased. 100% OF A COMPANY’S REVENUE WAS CAPTURED VIA PHYSICAL PRODUCTS!Shift to today, and accounting products are no longer physical, but entirely digital. TODAY 0% OF OF A ADDING MACHINE COMPANY’S REVENUE COMES FROM PHYSICAL PRODUCTS. AND, FOR THE FIRST TIME, A FREE, ADVERTISING SUPPORTED BUSINESS MODEL BECAME POSSIBLE FOR THIS ADDING MACHINE COMPANY!This fundamental new availability of a free ad supported business model has happened to thousands of industries.The result is that there are hundreds of thousands of more businesses trying to do an ad supported free product business. That is, deriving no revenue at all from the user-the true meaning of free.Advertisng is a big business, but it can only support so much. There is simply a limit what it can support (anyone know if we are approaching that limit is? I don’t).The question is, what OTHER business model exists out there where a company can give it products away entirely for free to the consumer (DERIVE NO REVENUE FROM THE CONSUMER)? The model of giving away for free a basic digital adding machine for free and charging for upgrades is not the same because the company is back to capturing 100% of the revenue from the consumer and the consumer is back to paying money to the seller to use the product (the well known razor/blade model).Does anyone know what other business model will do this? But, please don’t be fooled by the razor/blade model being touted as free. It is not truely free to the consumer as the analog and ad supported newspaper, radio, and tv industries sling

  10. ShanaC

    Really quick: Even though it’s a great post, I really want a more defined version a what should be free and what should be premium. Reason is that there is a certain effect within societies that comes from being the holder of the desirious, premium option. Especially societies that treasure the premium.We are creatures of society, subcultures. We are bound to certain values of those subcultures and societies. Lululemon, for those in the know, may not have given away the desired object. And it may not be in the clothing either. What’s the root of real premium here?

    1. Peter Slin

      It is said that value, like beauty, is in the eye of the beholder. And society and tradition have a huge influence on the eye of the beholder.Adam Smith might posture that value (in a captalist system)is determined by the invisible hand of capitalism which oversees the interaction between the buyer, the seller, and the monetary system.Free is an illusion (ask the Cubans and Soviets) and we dn’t have to worry about currency becoming obsolete anytime soon!

      1. ShanaC

        Which is why I bring it up. Something about learning to draw from the idea of “the gaze” on the body.Free is an illusion. So are parts of the invisible hand. Neither answer is satisfactory to me.I partially exist here because I desire to find out that answer. Most of what we see here is also an illusion. And yet we are attached to it. A large part of me wants to peek behind the veil. The only real way to do so would be to recreate large parts of society that we’ve been writing and talking about for thousands of years.I guess that’s why I am so worries about the idea of freemium. It makes this idea very unclear…Who is looking at what? What is the value? How do we measure that value? In relation to what? And on the web in particular, where it is already hard to measure tangible, the more intangible we get, what do we do to make it clear of these sorts of odd, I guess the word I am looking for, is equivalences of values. It feels very much like rebooting society. There is no money here, we’re importing real world money. We’re importing real world values, and yet, how much is my avatar really an extension of me? One of my possible “the only way to really find out” is to start building the tools that we seem to rely on as a society in the west.At some point we need to come up with a very clear metric system to compare objects. As well as a clear “myth”, a clear value-system to pass on to our children. You can’t talk about “What’s it worth?” without asking the questions of what you want this place to look like. We’re barely starting on that road. And without a society, especially for something we deem tangible enough to be attached to it and shareable enough that we can trade value on it in a physical layer, it’s going to be a dusty long road of relating physical world a to virtual world b. You game?

  11. Jason

    and it’s great we can apply free to small businesses online too. offer x free for every x amount spent. offer x incentive just for creating an account. drawing for x with email signup. even free shipping is a great incentive.

  12. julie_poplawski

    I have taught those Free Lululemon classes and it drives traffic, business and more important “a tribe” of like minded shoppers. I’m sure Seth Godin realizes that special aspect of free yoga!

  13. Carl Rahn Griffith

    The free debate seems to cause so much angst in our community because so many people in this ‘industry’ nowadays don’t even know what their product, service or value-add is.A lot of this introspection and self-doubt is then fluffed-up and transformed into pseudo intellectual radical bravado by tagging it as being part of a Social Media ‘revolution’ or whatever.Never before has mankind produced so many vacuous sound-bites and given so many of them a free platform to broadcast them on. Have you heard some of the stuff that comes from TED conferences, et al? The ratio of clear, relevant, innovative thinking to pretentious and meaningless bullsh*t is rather worrying. Yet so many of us seem to lap it up. There’s going to be a big wake-up call one of these days soon.If you’ve got the right product, service and/or value-add an awful lot of this debate simply goes away.I might share our pains with some of the local builders in the village pub later this afternoon.

    1. David Semeria

      Spot on Carl. Whenever the marketing types get involved, the signal-noise ratio plummets.

    2. peter Slin

      I tried to go to TED in Boston, but couldn’t get an invite!! So thanks for the summary!!

    3. Ted

      “The ratio of clear, relevant, innovative thinking to pretentious and meaningless bullsh*t is rather worrying.” No kidding. Some day you’ll stop commenting here. Until then…

  14. Morgan Warstler

    I posit a radical idea about advertising… funnily enough it fits perfectly into the freemium model, but then negates Seth’s point. More over, my theorem on advertising naturally predicts which “half” of your advertising works.Traditional thinking about brand advertising asserts that the buyer is guy buying the shoe, and the seller is Nike. The ad is some creative way to make him want the shoe. This is wrong.The buyer is the guy who sees the ad, doesn’t buy the shoe, but really likes the ad (has the proper positive emotional response). The seller is the guy who buys the shoe… he’s the guy who pays for the ad campaign.The advertising is actually the product. Nike is merely the PR company paid by millions of clients (shoe buyers), to make sure that all the non-buyers ARE IMPRESSED with them. More specifically, the advertising, which often times costs more than the raw product, functions to enable people to clearly define themselves to one another without speaking. What makes a Timberline shoe mean “loves the outdoors” until the campaign establishes it?This is the crucial point: it isn’t what the product says about you, it is what the product advertising says about you. The product says nothing, the advertising speaks to millions.Suddenly evaluating all brand advertising is easy… a good ad delivers effectively the message about the buyer he seeks to have conveyed. Convince buyers of that about your advertising, and you have a winner.

    1. Pet Sling

      An interesting post. What about those companies whose strategy is to not advertise at all (thereby setting an aura of exclusivity)?The traditional way to determine buyer and seller is by following the path of the currency. Buyer gives money to the seller. In your model, the buyer does not give the seller money; and your seller does not recieve money from the buyer (in fact the seller actual loses money cause he is spending money to buy shoe)I guess The value being traded in your model is an intangible value. It seems to me that you are going to have to find a way to reconsile your model withthe currency model to make it valid (like unifying quantum physics with large scale physics)One thing- i don’t see how it makes it easy to determine which half of your ads work. Your model removes the measuring stick of dollar sales generated during the ad campaign and replaced it with what?slin

      1. Morgan Warstler

        “which ads work” – I mean this as a gut check approach to testing creative. When a consumer is unimpressed with the ad (non-buyer), the lifestyle/statement is not conveyed, the seller (the actual product customer) senses it with the same gut check looking at the ad.My thinking is that people view brand advertising as potential statements they can make about themselves. They assume then, that when they wear/drive/own the product, the ad becomes an ad about them, they ad that tells everyone who they are and what they are about, the seller is the product.Imagine a man standing with his back to a wall, and cover the wall with the ads for the products he has purchased. This is a very carefully constructed, unique as a snowflake, collage that shows off for the world who he is.This is the rarefied & elegant human function of brand identity advertising. It is totally a freemium function, but it raises up advertising – the ad is product. Forgetting that in the discussion of free is a mistake.

    2. kidmercury

      great comment — thanks!

  15. timraleigh

    Free ain’t what it used to be…or to coin a Yogiism, “Free is too expensive for me”.IMO, the proliferation of “free” has helped increase the abundance of information available to us and decreased the original advantages “free” had in capturing our attention. We are attention poor and the use of Free is not working as well as a result of all the (free) information we have access to.

  16. jturner

    I have a few friends in nyc that have gone to Lululemon’s yoga events and had a wonderful time, and then purchased their clothing because they like it and to benefit a the company that is generous enough to organize events like this.

  17. Chris Hopf

    The majority (yes, high majority) of “Free” users are well aware of the intent behind a “Free” offering. Using “Free” can work in the RIGHT situations and if done carefully (not a lazy shortcut by someone without real business experience). You should never provide a Free offering without a clear understanding of how you will convert Free Users into Paid Customers. Again, there is a right way to leverage a free offering in the right situation. So many speak in absolutes . . . when it comes to the “free” debate . . . it really depends on many variables & some critical basic business economics. Consider . . . Understanding Freemium: How to Create & Grow Paying Customers –