Most online content and services have been costless or in other word, it is free since the beginning of the Internet. Across the age there have been several tries to present paying models but almost all of them have failed. Internet companies like eBay that provide their services free of charge have generated a massive number of users.

Each business owns customers but are users from these free services “customers” in the conventional sense of world? Is somebody a customer if he does not pay for the service?

Supposed you can address ‘em as customers as they do generate income and money for the website, although in an indirect way. Monetization could be in the form of advertising, which is the regular Google model. Or it could be accomplished by charging a commission on every transactions brought in through the site, which is eBay model. That mean, when you purchase something on eBay, although you do not get billed beyond the price of the item, the seller or vendor is required to pay up a small fee to eBay as commission for the sale.

Traditional wisdom says that the seller or vendor is apparently a more valueable “customer” than the buyer. But traditional wisdom would be wrong, in these case. Just as it’s the seller or vendor who provides profit for eBay does not mean that the seller or vendor is necessarily more valueable than the buyer or customer who uses the service free of charge. There would be no sale without buyer and customer. Therefore, each buyer and customer in such a business owns some value to the company.

It is difficult to fix a value on “free” customers since conventional customer valuation techniques or formulas do not apply in an Internet business model where the services are provided for free to the buyer. As an example is property sites i.e. whose clients include home buyers and sellers, auction sites i.e. customers include buyers and sellers, and job sites i.e. customer include both prospective employers and employees.

A purchaser on eBay does not generate direct revenues or profits to the firm but pulls in more sellers and raising numbers of transactions. Since more jobseekers sign up to Monster.com, more employers are willing and able to be paying customers for the firm. It is this indirect outcome that generates value for a firm.

The conclusion could be a little unexpected, although if you are an entrepreneur operating a free-service dot-com, it is probably something you already instinctively know. The value of every free customer (buyer) was actually slightly higher than the value of every paying customer (seller). The value of free customers also changes across time. Found that in general, a free customer’s value initially growths as the firm grows but afterward declines when the firm reaches a critical mass of free customers.

So approximation on the value of free customers is crucial is that it lets website owners to optimize their marketing expenditure. Heavy marketing spending is involved  in the early former days to pull in a critical mass of customers and buyers, the network affect itself becomes a bigger attractant than marketing as the business grows, allowing a company to bring down its marketing budget overtime. Knowledge about the optimal spending amount with some precision at several different points in time would help business maximize the profits. The info would also admit a company founder’s, managers, and investors to gain a preciser understanding of the firm’s overall value.

The “two-sided marketing” where a business firm has 2 types of customers (buyers and sellers) who interact each other which is less complexity than Web 2.0 sites model like social networking sites in term of the dynamics of customer interaction. Thus different business model is not applicable to certain sites. Other than that, there are more complex model that focus on “free” customers such as YouTube, Facebook, Skype and also an open-source software company like Unix and Linux that produced Red Hat and also MySQL that provided free database software and service.