The Diffusion of Free Products

Offering free products (freeware, freemium) became a common marketing strategy and one of the more intriguing phenomena of the digital economy. This book examines freeware's growth dynamics. It addresses two research questions: (1) Are freeware growth patterns across countries consistent with the diffusion literature? (2) What model can describe the two stages of this strategy (free and paid) and help in understanding and predicting sales? Therefore, it comprised of two parts. Part 1, Global Diffusion of Freeware, suggests that unlike that of classic products, between-country variation will be very small initially; country characteristics may not help explain these differences; and variation will increase as the product life cycle progresses. In addition, the global effect on growth is stronger than the local effect. This can be explained by the unconstrained growth of digital products. Part 2, Paid Version Growth, deals with the conversion from free to paid customers. This process is modeled as a two-stage diffusion model with two parameters: Proportion of Buyers () and Conversion Hazard (). A unique data is used to validate the theoretical propositions and models.