The “Free Parking” Business Model

Context plays a major role in the success and survival of platform businesses. Competitive approaches commoditize network elements, easy entry, replacement of network components, and competitive approaches commoditize parts of the network. Java's users have network effects, but they have no profitable relationship. Therefore, a company's competitiv... See more

You can combine free services with physical goods or businesses unrelated to pure-play software. Fitness bands will come with a growing range of software, but if supplements have a higher margin, the band and software may be given away. "Free parking" business models risk companies giving away their products in the technology business with no margi... See more

Companies with relatively low marketing and sales budgets often use freemium services. As a result, the company converts code into marketing expenditures. It provides service X to generate qualified leads for interconnected service Y. Freemium services with strong network effects do not all. It's not network effects that give you salty peanuts to s... See more

Business questions must begin with the customer. Platform owners, for example, may find it hard to identify their customers. Platform owners act as intermediaries between different market sides. By connecting the "sides," indirect network effects can be harvested. Buffett and Munger describe network effects as the strongest they have ever seen in G... See more