Freeconomics: The art of making money by giving things away for free

At the same time that Chris Anderson was penning a Wired article that would become the seed concept for a controversial best-seller, Vinny Lingham was launching yet another internet business. It was 2008 and both Anderson and Lingham were obsessed with the same concept – making money by giving away things for free.

Anderson’s article – Free! Why $0.00 Is the Future of Business – would prove to be the precursor for his book Free. The Future of a Radical Price, while Lingham would launch Yola , a business based on giving away websites for free, and would raise $25m from Johann Rupert’s LXE & JSE listed Reinet Fund.

Lingham’s interest in “freeconomics” started a couple of years before 2008. Already a millionaire thanks to a smart decision to found a search marketing company called Clicks2Customers as online marketing was really starting to take off, Lingham could have rested on his laurels and simply raked in the cash from his then highly successful Cape-based business. Instead he cashed in and headed off to Silicon Valley to cobble together a new business based on giving away websites for free in one of the most competitive environments in the world.

Crazy, laughable and mad

“People thought I was crazy leaving a hugely successful business to come to the United States and start a business that was all about giving away free software. Some people thought it was laughable. Madness, however, is relative to time frames. What looked completely and utterly insane three years ago doesn’t look so mad anymore. Visionaries see the world before it happens,” says Lingham.

Yola’s growth trajectory is scary. The company started as a spark in Lingham’s mind in 2005. Two years later he was in San Francisco setting things up. Yola launched in 2008 with a handful of customers. In 2009 the company would pass the two million customer mark, and cut a funding deal with Reinet, the venture capital company realised through the restructuring of Richemont, Johan Rupert’s Swiss luxury goods business. Today Yola has about 3.5 million customers, 50 servers and 60 employees. And the growth trajectory isn’t slowing down.

Says Lingham: “Although giving away things for free seems like a radical business proposition, it’s been around for a long time – well, ever since Gillette invented the disposable razor. Free isn’t a business in itself, but is rather about trying to extract value. You need to look at it as very powerful marketing model that’s focused on customer acquisition. It’s about a land grab, getting people tied up on a volume scale. If you have millions of users and if just five percent of your customers upgrade to paid services, you’re doing good business.”

Yola gives away websites for free, but makes money on domain name purchases, premium services, styles or website designs, and online marketing.

Keeping ahead of the pack

“Free is a difficult business model to fund and is certainly not an easy model. The free business model will only work if you can prove revenue or have a strong upgrade path to billing. Obviously if you’re giving away services and not drawing revenue, you’ll be out of cash and out of business. If we didn’t get funding we wouldn’t have been able to continue,” says Lingham.

“You need a lot of financial depth to be able to handle the growth of a free business, which is outside the reach of most people. Then you need to have first-mover advantage. We had no competitors when we started, but now they’re a dime-a-dozen. Fortunately, however, we have enjoyed significant traction and are way down the line, way ahead of the game.”

What advice does the Lingham have for young guns? “My suggestion is to start small and build it up slowly. Focus on quality and service. If you want to start an internet business, work in the industry first. Find a job, find your feet and learn everything there is to know about the industry from the experts before you start on your own.”