Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies

by Reid Hoffman

“Free” has an incredible power that no other pricing does. The Duke behavioral economist Dan Ariely wrote about the power of free in his excellent book Predictably Irrational, describing an experiment in which he offered research subjects the choice of a Lindt chocolate truffle for 15 cents or a Hershey’s Kiss for a mere penny. Nearly three-fourths of the subjects chose the premium truffle rather than the humble Kiss. But when Ariely changed the pricing so that the truffle cost 14 cents and the Kiss was free—the same price differential—more than two-thirds of the subjects chose the inferior (but free) Kisses. The incredible power of free makes it a valuable tool for distribution and virality. It also plays an important role in jump-starting network effects by helping a product achieve the critical mass of users that is required for those effects to kick in. At LinkedIn, we knew that our basic accounts had to be free if we wanted to get to the million users we theorized represented critical mass. Sometimes you can offer a product for free and still be profitable; in the advertising-driven business model, a large enough mass of free users can be valuable even if they never pay for your service. Facebook, for example, doesn’t charge its users a dime, but it is able to generate large amounts of high-gross-margin revenue by selling targeted advertising. But sometimes a product doesn’t lend itself to the advertising model, as is the case with many services used by students and e...