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Web Firms Find Paths To Profits: Free Vs. Fees

Consumers love a price of zero — but it can be tough on the bottom line. That has led some companies to provide a lot of free stuff and only charge for certain things. Other companies are resisting the pressure to give their products and services away. Two web-based firms illustrate the dichotomy.

A Gaming Company With Many Rules

Seattle-based Big Fish Games is indeed a big fish in its industry. It distributes more online games than anyone else, at about 1 million a day.

Company founder Paul Thelen says the company's approach to customers is based on a simple idea. "We call it 'try before you buy,' " he says.

You can try almost any Big Fish game for free; many remain free indefinitely. Thelen says that with games like Bubblez — in which players shoot paint bubbles, trying to match colors — users can open an Internet browser and play as often as they like.

"This game probably cost the developer somewhere between $5,000 and $20,000 to build," Thelen says. "It can be supported by ads, and it is."

Having a large online audience brings in advertisers, and those ad dollars cover the costs. But ads alone won't pay for Big Fish's cinematic and highly produced games, like Drawn: The Painted Tower.

The game cost more than $1 million to create. And since the audience is smaller, all players need to pay to support the cost.

Another game, Faunasphere, can be played for free, but there are add-ons — things like extra animals to make the game more fun — that players have to pay for.

This approach to pricing is called "freemium" — some content is free, while premium content is not.

At some companies, a small number of paying customers essentially subsidize the free riders. At Big Fish, the model is more complicated, but it works: The company has grown from one employee to 400 in the past seven years.

Note To Customers: Pay Up

In New York City, Squarespace CEO Dane Atkinson favors a more old-school approach. As Atkinson says of his company, "It's a publishing platform on the Internet that thankfully charges all of its customers."

That's right. Squarespace is proud to charge businesses, bloggers and others for its publishing tools that can create Web sites — even though there are companies providing similar services for free.

"We began with a free model," Atkinson says. "Anthony, who's the founder, was under a lot of pressure from the community at the time that said that everything has to be free. And he quickly realized that it just seemed like the wrong equation, so we started charging — and we've charged ever since.

"What it's allowed us to do is really build a model that caters to those customers, and not feel any of the pressures the free business model puts against you," Atkinson says.

For instance, Squarespace doesn't have to worry about appeasing advertisers who are footing the bill. And because customers pay a monthly fee for hosting and other services, the company can provide customer support 24 hours a day. Free sites supported by ad revenue can't afford to do that.

Succeeding, Fee Or No-Fee

Atkinson says that the privately held Squarespace is very successful. But, he adds, some so-called experts still prod them to offer a free service.

"And we know the reason we are succeeding is because we don't," Atkinson says. "So every time a book comes out or people expound on how free is the only way to go, it gets our hair standing up. There is another alternative; there is another way to run your business."

If these two companies illustrate anything, it's that running a digital business is tricky — and that finding the sweet spot between free, freemium and paid may be the difference between success and failure.

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