The Power of a User Base: Lessons from the Grateful Dead

The Grateful Dead have often been hailed as trying a most revolutionary business model by allowing fans to record their concerts and share it and by earning from Concert tickets and Merchandise. The Dead are one of the greatest bands of all time despite giving their stuff for ‘free’ till very recently.

The model really tends to innovate by redefining what is being sold. The Dead got a good consumer base (the fans) by giving away their primary product offering for free and leveraged that to earn revenue from secondary products (tickets, merchandise). This is somewhat similar to what Linux did in giving the OS out free of cost and earning on documentation, support and such other stuff. By redefining what you are selling, you suddenly tend to occupy a position different from any of your competitors.

The model sounds very attractive but comes with an obvious catch. You need to be sure that your secondary products can serve as a sustainable source of income. It worked for the Dead because they toured heavily and had a sizable group of “Dead-heads” following their concerts.
Giving something away for free to capture a big user base has been around in some form or the other. Such a model promises several scenarios:

• Scenario 1: Provide something for free, get a user base, sell them other stuff and earn revenues. Like what the Dead did.
• Scenario 2: Provide something for free, get a user base, and now sell this user base to other businesses. Typical example being advertising on Broadcast TV which provide programs for free to TV Viewers.
• Scenario 3: Your product warrants repeat use. Provide the product for free; get a user base, charge for the same product. An extreme case is the case of illicit drug pedaling. Even having the first few classes free at a Dance school works this way.
  

Online business models understand these scenarios well. Many models focus totally on acquiring a user base by offering something for free. Generating revenue out of it comes at a later stage. Advertising on social networks is a classic case in point. Providing basic services for free and enhanced services at a cost is a ploy used by several websites. Giving a trial version of software to the user to get him hooked on and make him pay after the trial period is another such method.