A growing number of new businesses are following in the footsteps of successful companies such as Dropbox Inc., LinkedIn Corp., and Skype Inc., by giving away their products and services free to build a customer base.
Yet for some, the "freemium" strategy is turning out to be a costly trap, leaving them with higher operating costs and thousands of freeloaders.
That's what happened to Chargify LLC, a provider of billing-management software to small businesses, which used the freemium business model when it started out in 2009.
The Needham, Mass., company gave away its software to merchants that billed fewer than 50 customers a month. If a merchant wanted to bill more than 50 customers monthly, then the business owner would have to start paying $49 a month.