JJ Rosen FOR USA TODAY NETWORK – TENNESSEE
Published 12:44 PM EDT May 13, 2016
First CitiWide Change Bank is opening a branch in Nashville.
This is exciting news!
First CitiWide Change Bank does only one thing: make change.
According to a bank spokesperson, “We will work with the customer to give that customer the change that he or she needs. If you come to us with a $20 bill, we can give you two 10s, we can give you four 5s – we can give you a 10 and two 5s. We will work with you.”
When asked “How do you make money doing this?” the spokesperson responded, “The answer is quite simple. Volume.”
The First CitiWide Change Bank is of course a joke — a fake ad that ran on “Saturday Night Live” back in 1988. It is an SNL classic.
But looking back, this parody of what seemed like a hilariously idiotic business model turned out to be a peek into the real-life business strategy of the future: providing products and services for free.
Mobile apps, websites, long distance calls and even high-end enterprise software are just a few of the offerings that use the “give it away” model to somehow turn a profit. Companies ranging from Google and Microsoft to small start-ups have proven that pricing at $0 can be a road to riches.
I’m no genius, but it seems to me that selling something for free is a sure way to go broke. How can businesses turn a profit by simply giving their products away?
Ironically, the SNL “change bank” was actually on to something.
There are five popular approaches that businesses are using to make the “give it away” model profitable:
- The freemium model. The idea here is to subsidize free offerings with a premium offering that a small percentage of your customers are willing to pay for. LinkedIn, Spotify, Words-With-Friends — these are just a few examples of the freemium model. If 1 percent of their users then pay for “premium features,” that’s all they need to make a profit.
- The advertising model. Drawing a crowd can be valuable to advertisers. Facebook and Google demonstrate that delivering great products for free to millions of consumers makes for a profitable advertising platform.
- Loss-leaders. An oldie but still a goodie. Get a customer in the door by offering a freebie and then hope to sell them something else while you have them there.
- Deferred free. All those loyalty programs out there seek to reward customers for buying more. Buy 10 ice cream cones and your 11th is on the house.
- The labor exchange model. Imagine the value of the data that is generated by millions of users turning to a free email system like Gmail. Many large free services make their living by selling what they learn about us to other companies as market research.
Software, website and mobile app-centric companies are a good fit to use one or more of these free models. Once their products are built, they can be easily and cheaply offered to customers all over the world.
So, oddly enough, “volume” can actually play a key role in making a profit even if a product is being offered for free.
First Citiwide Change Bank of course would still be destined to fail. Volume with no way to monetize it is still a losing proposition. Remember all the failed dot-coms that counted on volume alone? Unfortunately many companies still miss this part of the formula. That’s no joke.
JJ Rosen is the founder of Atiba, a Nashville Google Fiber Partner, website design, programming, IT suppport and mobile app development firm. Visit Atiba online at www.Atiba.com or www.wheelhouseworks.com.