Due to how fast technology is moving it is often possible to build a product or service that is better than your competition at a price point that is free to the end consumer. This allows you to attack a competitors profits while building goodwill with your target audience.

Since the dawn of the internet giving away free stuff has been a staple of digital marketing. From free graphics to free web hosting and free calculators and tools like email and maps, digital companies have built billion dollar empires on the concept of free, often eliminating entire industries.

For example most news online is offered free of charge by those willing to write it in hopes of gaining advertising revenue. This has nearly completely depleted the subscription revenues the established news industry had earned profits from for over a hundred years.

Giving away your competitors products for free can also lead to a huge boost in online discussions around your brand no matter if your offering is the same quality as paid versions or not. This can help unknown companies catapult from the depths of the pit of unknown brands into the evoked set in consumers minds. Simultaneously this strategy can lead your company to reduce the revenues and profits of larger competitors pulling the two closer together.

The Santa Claus is a favorite of Silicon Valley funded companies because of this dual purpose the strategy possesses. Some of the more famous usages would be the early version of Facebook and YouTube. Today consumers might notice how many ads are on both platforms or find the ads incredibly invasive, but all or most of the potential competitors have long been wiped out and there is little incentive for new ones to crop up now.

Pros vs. Cons
Pros: Gaining conversations, free press coverage, and building brand equity by giving away something for free is time-tested and will prove valuable. You may also dig into your competitor’s revenues closing the gap between you.

Cons: Creating something and giving it away for free can be a costly undertaking, often upsets investors, and doesn’t immediately generate revenue in the short-term; making it a difficult proposition for small to mid-sized companies. You may also encounter issues with this strategy when something becomes far too costly to recreate free of charge. Imagine if you will Google, which uses this strategy as a small part of their larger corporate strategy, tried copying Netflix but having it with no ads and gave it away for free. The development and content licensing alone would be too cost prohibitive which is probably why they opted instead to try and get people to pay for YouTube. There is also the ever-present chance that when you finish developing your free thing consumers won’t be interested in it at all or tastes and preferences will have shifted.