I am one of the avid users of new tools and applications that are available free on the Internet. The question I always had in mind is How will these guys make money? If so, from when?

A VC blog says  “Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.”

Probably the easiest business model is to give you products & services for free and get the leads. However, the biggest stumbling block to this model is to entice users to upgrade to Premium services. In many cases the users are just fine with the free model.

If we put the search services offered by Google on a value proposition scale, where do we draw a line between the free services and paid services? Too few features and you users are not interested to even sign-in. Too many features and the users don’t have any inclination to upgrade to premium service.

Perhaps figuring out this is the toughest part of the entire business model. I am hooked to this model as I believe this is the basis for the new phase of Internet growth. More on this in later blogs