Fred Wilson on My Favorite Business Model: Turning Pro

Fred wants to know what we should call the Skype/Flickr/Trillian business model:

[from A VC: My Favorite Business Model]

Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.

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The best examples of this business model are when the customer implicitly understands why the paid service has to cost money. More storage costs for photos or virtual storage are good examples. Termination costs on other carriers networks in the Skype model are another. When it is just additional features that don’t carry an incremental cost to offer, it may be harder to convert free users to paid users. But if your free service is loved and you do a good job articulating the value that comes with the paid service, you can convert to paying users with good results.

I would like to have a name for this business model. We’ve got words like subscription, ad supported, license, and ASP, that are well understood. Do we have a word for this business model? If so, I don’t know it.

I don’t think there is a term for this, but I will propose one: Turning Pro. People are free to play with the product, and there are basically no limitations on its use. And they come to love it, and use it a lot — treating the product as an amateur, who is doing what it does for love, not money — they reach the obvious juncture, and the product Turns Pro, and start paying.