Free should only be Free once it is Paid for

Yesterday, my colleague Brandon Matthews penned an article titled “Free Is Never A Good Business Model”. In the article, he writes: “The application itself should be free, yet require a subscription to be useful.” As the title of this piece states, free should only be free once it is paid for. Confused? Sorry, I thought it was catchy. The key to the free app lies in a tidbit of information that is mentioned at the Apple (AAPL) iPhone 3.0 announcement where they mention “A free app stays free”. If the application is given away for free, Sirius XM (SIRI) loses a variety of potential income sources.

1. Subscription Revenue - Obviously, one of the key benefits of the iPhone app is going to be to drive people to become subscribers. When you buy from the iTunes store, it charges the purchase to your credit card already on file. The beauty of the iTunes store however, is that it is a proven fact that many press the “buy” button without really thinking about the cost involved because they are not having to put in credit card information every single time they make a purchase. The easier it is, the more likely they will be to purchase it.
2. World Wide distribution - Currently, Sirius XM requires you to be a resident of the United States in order to sign up even for an internet feed. I am sure that one of the biggest reasons they do this is because in order to “sell” something, the government is going to want to tax it. Sirius XM would have to set up tax collection systems for every single country that somebody decides to subscribe from. What a pain! Enter iTunes. Apple has already set up these agreements with over 50 countries where their iPhones are sold. When an app sells, Apple takes a 30% revenue share, and the company gets the other 70%. From Apple’s 30%, they pay all of the credit card processing fees, all of the taxes, and all of the server fees associated with the download of the app. Barring any international issues with select channels, etc, this would be a huge plus for SiriusXM. All of the benefits with none of the hassle.

[via Satwaves]

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