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Give Your Product Away, Make a Profit

We recently completed a project for a firm that was considering an investment in the digital photography business. They wanted a survey of the competition, so we dug into all of the startups and new companies bubbling up out there.
We were surprised by the large number of companies that were looking to give away photo editing and photo sharing software. Literally dozens of firms have sprung up that will give you free applications or free storage space for photos. We’re used to seeing free software in the Web 2.0 world, but usually there are just two or three such companies in each market category. In this case, we found dozens.

Why all the free offers?

We wondered what was driving this explosion of free software. It turns out that in most cases, the free offers were being funded by photo processing companies, looking to stir up more business for themselves. Once you start using their software, they bombard you with offers to make prints, calendars, mugs, t-shirts, and just about anything else a photo can be printed onto.
This is very typical of the business changes being driven by the Internet. The Web makes it much easier for a company to link together a value chain that had previously been made up of separate products and firms. These value chain startups can afford to give away products or services in one area because they know they’ll make money at another point in the chain.

Think about the impact of value chain competition

It’s extremely important for tech companies to think through how they could be affected by value chain competition. Is your product truly standalone, or is it part of a larger value chain for the user that could be integrated using the Internet? If so, you have a couple of options. You can create your own combined value chain by acquiring or building the other links, or you can create APIs that let other partners build a value chain around you. Either way, you should be sure that your link in the chain remains the one where the revenue is collected. Otherwise, you could find that your product category has just become the free giveaway that enables someone else’s business.

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