Entrepreneur's Journal: Should your business start giving away stuff?

Something else: top investors are looking at the free model. An example is Bill Gurley, from Benchmark Capital. According to him: "Free is not necessarily a game plan, or a guaranteed model for success, but rather a market reality. Someone may be able to do what you do for free. Does it guarantee they will be wildly successful? No, but it still may be a massive threat. Microeconomics is not a zero-sum game. It's perfectly reasonable for all the players in a market to not generate excessive (or any) profits."

Yikes!

Now, I'm not saying that you give up on selling your stuff. But, here are some things to consider:

Marketing: As should be no surprise, giving customers a free offering is a powerful marketing strategy. One classic example is the mobile industry; that is, give away the phone and sell a monthly contract. Essentially, it's a "loss leader" approach.

And, it can be disruptive. Just look at a fast-growing company called Practice Fusion. The company offers a free web-based management system for physicians. Such a thing would normally cost anywhere from $20,000 to $50,000 -- not to mention the consulting and integration costs. Oh, and Practice Fusion provides free support and training.

How can this be done? Well, I had a chance to talk the company's CEO, Ryan Howard. He said that, by being completely free, there has been incredible uptake of the product. In fact, there are about 18,000 physicians who use it on a frequent basis.

As a result, Practice Fusion has a highly engaged user base, which is certainly attractive to advertisers (although, the ads are fairly nonintrusive). The company also sells its data, which has become a rich source of revenue.

Finally, if a physician wants an ad-free version, he or she can pay for it.

Freemium: This is where you have different versions of product. Of course, there is a basic version that is free. From there, your customers can upgrade, which means paying some cash.

This is how Flickr works. You get a fixed amount of free storage. After this, you need to pay.

Generally, under the fremium mode the "5% Rule" comes into effect. This means that roughly 5% of the users support the rest. Thus, you generally need to get critical mass before you start to get profitable.

Community: Nowadays, it's easy to set up blogs and discussion forums. Actually, the software is probably free and the hosting is dirt cheap.

For the most part, it's the tech industry that has found ways to leverage blogs and forums to sell their products as well as provide support.

Yet, these tools can be powerful for many types of businesses. For instance, if you are a supply chain management consultant, you can post your thoughts on different strategies on a blog and answer questions on a forum. You may even put together some ebooks, which you can distributed on sites like Scribd.

All in all, you'll be building your reputation, which will set you apart from your competition. And in today's highly competitive world, this is really becoming a necessity.

Tom Taulli is the author of various books, including The Complete M&A Handbook.