Under the continuous capital winter, Internet startups are generally more difficult, and recently there are one after another large amount of financing companies bankruptcy or transformation, so a large number of people write articles criticizing the Internet first free circle user business model, such as wool out of the pig, where the pig went？After analyzing various cases of burning money and dying, many conclusions were drawn that as long as criticizing free or subsidized team operations continued to burn money, it became a politically correct approach, and it was almost approved by the side。But I have a different opinion about this。

There are usually two criteria for evaluating enterprises: 1, industry status;2, the ability to obtain long-term free cash flow。Therefore, whether it is a traditional enterprise or an innovative company, the future revenue and profit are the most important thing, you can burn money now and not make money, but not make money。Well, as we all know, the rough calculation of corporate profits is:

Profit = Sales X gross margin - expenses

Sales = unit price X quantity

When a direct-to-customer charging business model is built, sales can continue to increase in the early "self-consistent" period, but when a certain level of stability is reached, if you want to expand the number of sales, you have to lower the price.If you want to increase the selling price, the probability of selling quantity will decrease。It is very difficult to expect both quantity and price to rise。Unless it is in a monopoly industry or certain long-cycle industries, such as real estate or high-end liquor, it can sell more and continue to raise prices。But most industries can't do that。

Even the Internet thinking model millet mobile phone，When the main product builds potential energy，But when the price and performance are similar to similar Android phones on the market，He started selling cheaper Redmi phones，From an average of 2,000 to 800, 900，The company expanded its shipments with low-cost phones targeting the low end of the market，And got a lot of sales，But gross margins have fallen sharply，Of course, the latter extends the value of the industrial chain through the improvement of market share，Making money through value-added services is a good model。

Most companies, if they want to raise the unit price, the number of sales will certainly decline, so that there will be a sales ceiling problem。This is particularly common in the traditional business model is the price reduction promotion, in favor of the so-called small profits and quick sales。Therefore, with traditional enterprises of a certain size, when you want to increase the total profit, the business logic between unit price and sales volume is very difficult to balance。

But I think for Internet companies, the free model is probably a good business model!

Because the free model has a high probability of possibility, effectively breaking through the user ceiling and sales ceiling。Moreover, the Internet provides two important models of scale economy and scope economy at the same time, which can significantly reduce marginal costs, and even reduce some costs to zero。

Because for a free product，Theoretically, it opens the ceiling on the number of customers，The acquired customers can then be used as carriers in reverse，Use the circular subsidy model，Cash out of another channel，Mass screening of users for "level transformation" to obtain large-scale revenue，And the number of free users can continue to grow，Keep increasing the capacity of the "reservoir"。That is, without interfering with the user experience, the use of "free" to continuously expand the user base, and then continue to carry out circular business realization in a variety of ways with a larger user base。

So in a self-consistent free model，用户，Commercial realization and channels can interact positively，At the same time, it is equivalent to building a very strong barrier with "price reduction to zero"，Effectively blocking the entry of new players，This is also why Tencent, Ali，Amazon can get this big，And even though it has become an elephant, it is still growing rapidly，But many traditional industries such as automobiles, food, clothing or department stores will easily hit the ceiling even if sales are large，At the same time, new players can continue to enter the challenge。

Of course, there is an important reason, almost most of the traditional enterprises that charge users directly, their marginal cost can not be zero, so free will lead to the collapse of the entire business logic, just like five high-end hotels selling yuan bowl of soy milk, the door is meaningless with the wet market。Therefore, only the marginal cost is very low, and at the same time, the model of "war to feed the war" can adopt the "free" business model, and the imitation will only accelerate the speed of the West。In particular, O2O enterprises, enterprises with sales radius, whether or not the so-called shell of the Internet, can not blindly follow the trend。

In a restaurant business, if you want to increase revenue and profit, you either raise prices and stabilize sales, or you accumulate sales。When a hotel wants to vigorously advertise or sell at a low price to attract more customers, you will find that because the hotel's traffic is limited, his sales volume is not so big, when the low gross profit margin can not maintain the operation of the hotel, or the advertising cost is too expensive, the hotel is likely to go bankrupt。If the hotel wants to raise the price of sales to improve the gross profit margin, he will find that there are fewer guests, so a large number of O2O enterprises or many regional mobile medical enterprises, due to the high marginal cost, continuous free is just constantly looking for death in various ways。

To sum up, only when the marginal cost can continue to decrease, and the scale of the expansion of the decreasing cost can continue to create a new value chain for you, free is a good business model!And to think that as long as there are users or traffic, there will be business in the future, that's nonsense。We must continue to build a business system, find the position of our products in the entire industry value chain, and create value for payers in order to build a sustainable business model。