- Businesses increasingly use free products to capture user attention, and long term commitment rather than immediate profit.
- Freemium and free-trial models rely on retaining users and convert a small percentage of them into full time paying customers.
- The zero-price effect leads consumers to overvalue items overlooking the hidden costs such as ads or reduced quality
From streaming music to downloading a video game at no cost, free trials and subscriptions can feel like a win. However, across digital platforms and in-person services, “free” is often a carefully-designed business model built to generate profit over time and has become one of the most powerful marketing tools in the modern economy. In reality, many free products serve as an entry point for businesses to gain money, attention, personal data or long-term user commitment.
Freebies in the Bay Area
Every spring, different resource and career fairs come to Lynbrook. Students usually leave stations with branded freebies, such as pens or water bottles. While these items cost nothing for consumers, most are rarely used after being collected, as students already own superior duplicates or can’t find a day-to-day purpose for the item.
Despite this, students often continue to accept free items. This behavior is the zero-price effect, a psychological principle in which people see higher value in items that are free by magnifying the positive traits. Simultaneously, consumers ignore the hidden costs and downsides of the item, such as its potentially lower quality.
“For a lot of product-based industries and businesses, giving out free products can be a great way to keep your customers loyal,” senior and DECA competitor Aarit Parekh said. “The main point of it is to get you to think of that specific brand when you think of the product itself. It’s why Costco gives out so many samples of its exclusive products.”
Free access, powered by ads
Free, ad-supported platforms are becoming a staple in the digital landscape. Many turn to services like Spotify or YouTube because they offer full access without requiring payment. To make these platforms profitable, companies collect user data to deliver targeted ads. As a result, rather than paying with money, users exchange their tim, attention and privacy while repeated or personalized advertisements interrupt their experience on the platform.
“I think there’s a certain kind of allure to free,” Tapia said. “You’re getting a deal; you’re having a hookup of some kind.”
Despite the inconvenience of frequent ads, many continue using ad-supported platforms rather than upgrading to paid versions. This trend is largely driven by the zero-price effect, where users tolerate lower quality or inconvenience to avoid monetary cost. Over time, however, continued exposure to these ads may encourage a portion of users to upgrade to paid plans because of their frustrations, ultimately benefiting the business.
“If we think about efficiency in an economic context, it’s about getting the most for the least,” Foothill College philosophy professor Brian Tapia said. “We’re conditioned to spend as little as possible, to get as much as possible.”
Freemium, a business gamble
Freemium models offer users a choice between free and paid premium models. Businesses gamble that the more time a customer spends on the free model, the more trust they will have in the product; subsequently, the chances of users upgrading increase. Overall, the conversion rate from free to paid is around 3.7% of all users, though the smaller fraction of premium users make up most of the business revenue.
Having a free model allows users to explore the basics of an app. However, in some cases, free users are satisfied with the product despite restrictions and choose not to seek an upgrade. Ultimately, businesses focus on retaining users. Freemium models are able to benefit off of both free and paying users, rendering neither of the experiences completely “free.”
“A free edition of a program is a bet that people will become interested enough in the product, then ultimately frustrated with their version of the product and willing to pay more for it,” economics teacher Jeffrey Bale said. “Businesses see it as nothing more than an investment.”
Subscribing to free trials
Free trial and subscription models give users temporary access to a service’s full features before payment is required. Rather than receiving permanent free access, users can only experience the product at its highest quality for a limited time, creating a sense of urgency. Streaming platforms and online retailers like Amazon often use this strategy before asking users to commit to recurring payments, such as monthly or yearly fees.
Despite offering temporary free access, subscription-based businesses profit from converting trial users to long-term paying customers. During the trial period, companies may track the users’ preferences and behavior to determine what features are most valuable to them. By showcasing the full functionality of the service, users may become used to the higher standard, often driven to pay and retain what they have. Extended engagement during the trial also raises the probability that users will subscribe once payment is required.
However, free models also present challenges. If users do not perceive enough quality during the trial period, they may cancel the service early.
“If you just offer it free and not enough people actually join on, that can be very problematic, because people get used to free,” Bale said.
Users may also exploit the system by repeatedly signing up with different accounts. To counter this, businesses carefully balance trial length and feature demonstration of the service in order to retain long-term users. Subscription models prioritize this retention for sustained profitability, since recurring revenue depends on users continuing their subscriptions over time.
