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Study on the success of free digital services

Professor Jan Hendrik Schumann’s Chair for Marketing and Innovation has researched the success of free digital services in the publication ‘How Consumers Assess Free E-Services: The Role of Benefit-Inflation and Cost-Deflation Effects’. Free services are widespread on the internet and are a key component of the business models of a great variety of businesses.

The paper, which was written in collaboration with Professor Martin Mende and Professor Maura L. Scott from Florida State University, will be published next year in the renowned Journal of Service Research, the leading international journal in the field. ‘We were interested in finding out why there is such a strong demand for free service offers’, explained Björn Hüttel, a member of Professor Schumann’s team and the first author of the study, ‘and especially how non-monetary costs, which is how consumers pay for ostensibly free offers, such as by watching an advertisement, affect the demand for online services.’

The study’s results show that customers respond to free offers with strongly positive emotions. These emotions lead to two effects that are central to the success of free online services: the benefit-inflation effect, which describes the fact that consumers’ perception of the usefulness of free online services is disproportionately high, and the cost-deflation effect, where consumers rate non-monetary costs for supposedly free services significantly lower than the costs of comparable paid services.

‘Our results show that while consumers are aware that they might have to pay higher non-monetary costs for a free online service, they are still more likely to tolerate such costs, which results in a higher demand for such services’,

said Professor Schumann.

‘Advertisements seem less disruptive to us if we receive a free service in return.’ However, as the researchers were able to show, this effect disappears when an online service starts charging consumers: ‘In that case, consumers are much less tolerant of non-monetary costs, reducing the demand of the service.’

Accordingly, before using a service, consumers should be aware that free digital services such as smartphone apps are not really free, and that they are instead paying for it by other, non-monetary means, such as advertisements and access to their personal data.

‘Rather than taking the “free of charge” label at face value, consumers should therefore carefully consider the true costs and benefits involved’, Schumann recommended.

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