Free vs. Open: What Fitness Apps and Fortune 500s Teach Us About Business Models

Business models are necessary for companies to survive and thrive. This paper will focus on the free and open business models. To effectively discuss and compare them, it will expand on the following topics: economic and revenue mechanisms, customer and community engagement, and long-term sustainability and impact. Regarding actual companies, Strava and Strong use the free business model, and Proctor & Gamble and Apple’s App Store use the open business model (Learning et al.). These companies will continue to be discussed in the sections below.

Economic and Revenue Mechanisms

Each business model has different ways to generate income. The trick to the free model is to ensure the free product is of high value to the customer. This relies on the result of high satisfaction, publicity, and creating a viral effect and gravitational pull toward your product. With the high value established, converting those customers to pay will be relatively easy. David Skok discusses in his article the importance of your product’s footprint and how the customer base can pave the way for representing potential future monetization with your product (Skok, n.d.). Without thorough customer research, the high-value product can be misunderstood, miss the mark entirely, or not have the right timing.

Strava offers a freemium native mobile and desktop application that anyone with the technological capability can download and use. It utilizes feature lockouts, a visual tease of a paid feature that hints at what data users could gain and learn from if they pay for the upgraded version (Strava, 2024). Strong also uses this feature in its native mobile application. While it is not as extravagant as Strava, it is an excellent example of a small company that has used freemium to its advantage (Strong, 2021). The lockout feature is instrumental in helping companies convert or resubscribe customers to the paid versions. Even though Strong’s subscription cost is significantly less than Strava’s, both utilize the freemium business model well. The only difference with Strong is that the customer can spend more money once and gain lifetime access to the app (Strong, 2021). In a world of subscriptions, sometimes it is nice to be able to own something. The downside to lifetime access is losing any further monetization from that customer.

Professor Henry Chesbrough coined the term open business model to describe businesses that use external sources for innovation or external means to commercialize unique products. Anders Sundelin discusses the confusion the word "open" brings to this business model’s name. He simplifies an open business model, which can be an umbrella term but is usually open in its boundaries as an organization and transparent in transactions with collaborators. It relies on relationships, sharing risks, building a community, collaborating, and making money (Sundelin, 2009). These type of business relationships can be significant.

Apple is an example of a company that uses this business model. They use several other business models, but they use a variation of the open business model for their app store. For anyone to publish on their app marketplace, they need to pay a yearly membership fee of 99 USD; after that, for any transaction that the app receives, Apple collects a commission of 30%. Some variations are available with a lower commission percentage of 15%, but you must qualify for those programs (Apple, 2024). Currently, this is the only way to download a native mobile app to an Apple product without jailbreaking the product. The only other way to make it appear like there is an app on an Apple product is to bookmark a website and save the bookmark on the home screen. While it will look like a native app, it is different; the accessibility and behavior are also different.

Proctor & Gamble has a transparent and open website for potential partnerships. They list their current needs and even go into detail to help make it easy for a future partnership to decide; there is even a list of specific items in each category they are not interested in. Potential innovation and partnership solutions must undergo a rigorous process to be considered. While it is free to apply, unlike Apple’s App Store, it is still seemingly daunting and mysterious how long the process for feedback might take. It was surprising that with all the other transparency, Proctor & Gamble could have been more forthcoming with that information. However, there is little doubt that would stop a company interested in a partnership from applying (Proctor & Gamble, 2024).

Customer and Community Engagement

Maintaining current customers and keeping a good community is essential for any brand. Businesses utilizing the free model are effective when they understand that this free product is a “work smarter, not harder” way of acquiring customers at a low cost to be monetized later. This tactic also gives quick customer validation for a product (Skok, n.d.). There are drawbacks to this business model, such as when conversion rates can be low, and for one reason or another, users do not convert to paid subscribers. Thomas Niemand and others discuss this topic in a research article with Wiley. Stressing the importance of customer research, understanding what they are interested in and what they are willing to pay for regarding premium features or products. When it comes to being at risk with low profitability, the correct foundational research will always help guide businesses (Niemand et al., 2019).

Strava maintains excellent engagement with the community and customers through commenting, kudos, challenges, groups, map flyovers, clubs, personal goals, segments, and safety beacons. It allows some fun, free features while locking others out for only subscribers. This allows free users to catch on to the fun and value offered while not giving away everything for free (Strava, 2024). On the flip side of Strava, Strong could be better regarding community. They do not offer any social connection like Strava on their app. The only thing close to social connections they offer is the ability to share a workout. In doing so, it will send an elementary text of information to a friend via text message or email, depending on what is selected. It must be assumed that the simplicity of the application and the low cost keep users coming back (Strong, 2021).

According to Paul Stacey in his Medium article, the open business model maintains customer loyalty and community through inclusivity, participation, and universal access. Due to the openness and inclusivity, a significant downside to this business is the potential for loss of intellectual property. According to him, this business model is stark in contrast to traditional business models, which start with exclusivity and deny access until the money is paid (Stacey, 2016). When it comes to Apple and their app store, it is challenging to believe the complete authenticity of their customers is loyal when they have such a monopoly over Apple applications. Businesses are forced to use the app store unless they do not want to have iPhone customers. As previously mentioned, you can bookmark a link to the home screen, but the amount of people who will do that is slim to none. Looking past the monopoly, Apple gets kudos for working hard to create a very supportive and helpful website for these businesses to learn how to utilize the app store effectively.

When researching Proctor & Gamble, it is undeniable from their home page that they are all about the consumer and transparency. They offer several global, regional, and brand programs that help give back. An example of a global program is helping deliver relief in times of need. This type of help is after a natural disaster; they work with their brands to help provide comfort to those in need after loss. Not only does Proctor & Gamble get good recognition, but their brands do, too; this type of collaboration is a win for everyone (Proctor & Gamble, 2024).

Long-term Sustainability and Impact

Efficiency and adaptability to survive over time are incredibly important when starting a business and deciding the appropriate business model. When considering a business model's efficiency and adaptability, three significant factors should be considered: scalability, market saturation, and the ability to innovate or pivot. For the free business models, the cost of doing business trends is meager to none, especially if those businesses are online. For online freemium businesses, what helps to cut costs is the declining cost of processing power, which is helping the free web movement (Anderson, 2000). This is incredibly helpful for startups who have a minimal budget.

Strava, throughout the years, has worked incredibly hard to continue innovating with new features. There have been great additions, like increased accuracy with their maps and now offering dark mode, and some have been questionable, like their Athlete Intelligence, abbreviated AI. Even though this AI is in Beta mode, it has become viral with some whacky comments and fluffy, useless pep talks. Many have found this new AI feature annoying and unnecessary, and a few have found it simplistic and insightful because it has made connections that the user would never have made. Much of the feedback has been that Strava was “throwing in technology for technology’s sake” and not focusing on solving real problems (Schwartz, 2024). Time will tell with this beta feature if the AI gets smarter and if people become warmer to the idea.

Strong has continued to improve and adapt to technology and smart wearables in the last few years, nothing like Strava, but it is at its own pace. Features have been added, such as connecting your workout with a smartwatch, allowing users to reference sets and reps and adjust the information quickly. While they have yet to add artificial intelligence like Strava, they have unfortunately not been vocal about adding new features (Strong, 2021). It is nice to have a good product; however, for a company to not be vocal about continually innovating is never a good sign and an easy way to be forgotten and lose its sustainability. Lack of innovation does not mix well with the free business model.

An article by Industrial & Corporate Change discusses how open business models must leverage external knowledge and technologies, sharing development with their collaborative third parties. They must be continually innovative to continue creating value, which helps reduce costs, improve quality, and help sustain the company (Colombo et al., 2016, pp.353-354). Paul Stacey discusses how open business models utilize diverse revenue sources. The businesses that are smart about their plan use multiple methods for making money. He stresses that diversifying revenue methods helps mitigate risk and helps provide longevity and sustainability (Stacey, 2016).

Apple’s App Store has been crafty with how it advertises new and popular apps, as well as, on the developer side, offering special programs to help make becoming an app developer more attainable, especially for those who have a minimal budget. An example of a program is called the App Store Small Business Program. The eligibility of this program is to have earned no more than 1 million USD in total proceeds from the previous year. Meeting that eligibility will lessen Apple's commission to 15% instead of 30%, which can be very significant for that company (Apple, 2024). It is excellent that they have recognized small businesses and helped add cost relief.

Proctor & Gamble is the epitome of diverse collaborations. It proudly showcases its brands and ensures they are of the highest quality, superior performance, and value for its consumers. Some iconic brands that they work with are Always, Luvs, Bounce, and Dawn (Proctor & Gamble, 2024). As mentioned, diverse revenue methods help mitigate risk (Stacey, 2016). Proctor & Gamble has over 11 vast categories of products, and under each category are at least three or more companies that have met its quality standards and collaborated with it. They cover baby, skin, and home care (Proctor & Gamble, 2024).

It is difficult to determine which business model is better equipped for sustainability. Other factors must also be considered, such as the team's grit and how the company innovates or pivots. These factors will always influence and help determine the model’s success. The companies discussed in this paper are still around and doing great.

Conclusion

In short, this paper has discussed how the free and open business models generate income, interact with customers and users, and adapt over time. All the companies mentioned have been great examples of business models from which to research and learn. This information has been insightful, informative, and applicable to any entrepreneurial journey.

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Colombo, M. G., Cumming, D., Mohammadi, A., Rossi-Lamastra, C., & Wadhwa, A. (2016). Open business models and venture capital finance. Industrial & Corporate Change, 25(2), 353–370. https://doi-org.oclc.fullsail.edu/10.1093/icc/dtw001

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Strava. (2024). Features. Strava. https://www.strava.com/features.

Strong. (2021). Think Less. Lift More. Strong. https://www.strong.app/.

Sundelin, A. (2009, June 18). What is an Open Business Model? The Business Model Database. https://tbmdb.blogspot.com/2009/06/what-is-open-business-model.html.