How to Make Money Offering a Free Product

My recent trip to Ecuador taught me two things: 1) people over there eat guinea pig—they call it "cuy"—which actually tastes really good, and; 2) I don't know enough Spanish. The business that took me to South America recently, promises to deliver me to Chile, Peru, and Madrid in the coming year, three places where a solid working knowledge of Spanish comes in handy.

But, like you, I'm really busy. Luckily, like you, I live in the 21st century where everything from fine art to a higher education can be found online. It just depends on how much you're willing to pay. And, I, friends, am willing to pay nothing. But I still want to learn enough Spanish to order a cheeseburger and fries (una hamburguesa con queso y papas frita) in a foreign land.

Enter the latest spate of online language learning services and their respective price tags. In thinking of these, your mind will no doubt find its way to a product such as Rosetta Stone, but not because of its superiority as a learning tool. It just happened to achieve early market dominance. It also happens to cost hundreds of dollars, a price tag that would make more sense if I wanted to achieve perfect fluency.

But what I want is a non-committal romp through Espanōl that leaves me with the ability to communicate with a taxi driver well enough to get back to my hotel. That's why I signed up for both Fluencia and Duolingo. Both are free to start, both represent different aspects of free as a pricing model, and both figured out not only what keeps most of us from going with Rosetta Stone, but also how to fix a heavy and anachronistic business model, and still make money.

Had I stuck with it, Fluencia would have asked for a monthly fee once I hit a certain level. This is a classic free price model: They're saying something along the lines of, "We're so sure you'll love our product, we'll let you try it for free." That certainly does work. But I must confess that, being the diehard researcher I am, I couldn't help but demand that the Internet tell me how much it was going to cost to keep going with Fluencia before I started. 

And, even though starting was indeed free, I also couldn't help but compare every second of my experience against the fee I knew was coming. The result was a dramatically different experience than my time with Duolingo, one that proved fatal for Fluencia and its desire to see the inside of my wallet.

Duolingo is free. Completely free. No strings attached free. I've stuck with it for three weeks (a record for me) and see no sign of stopping now that I can successfully conjugate the verb "eat" (como, come, comes, comen, etc). Duolingo retains 30% of its signups, a number that might sound low, but is staggeringly successful in the fickle world of online services. It's well designed, fun to use, and downright effective.

But what you really want to know is, how does Duolingo make money? And, more importantly, how will you make money if you decide to treat your customers to a bit of free?

The answer has to do with lateral thinking. The inventor of Duolingo, Luis von Ahn, figured out that he could offer a great service for free while using the "human computing" power it generated to make money offering a paid service to those more inclined to actually write a check: corporations.

Duolingo is, in effect, a translation device powered by people. Its system is powered by our translations—human and accurate once filtered through a quality assurance algorithm—which are then sold to companies, publications, and individuals who find themselves up against a tight deadline, in need of a translation far better than Google can provide.

The lesson here is about having your cake and eating it too. You can give something away for free and still make money at the same time. All it takes is a little thinking outside the box (pensar fuera de la caja).

KJ is a bass player and singer-songwriter (like Sting, only taller); co-founder of Sessionville; and all too fond of sushi and Doritos®.