104 patterns free as a business Model “Bait & hook” refers to a business model pattern characterized by an attractive, inexpensive, or free initial offer that encourages continuing future purchases of related products or services. This pattern is also known as the “loss leader” or “razor & blades” model. “Loss leader” refers to a subsidized, even money-losing initial offer with the intention of generating profi ts from subsequent purchases. “Razor & blades” refers to a business model popularized by an American businessman, King C. Gillette, inventor of the disposable razor blade (see p. 105). We use the term bait & hook pattern to describe the general idea of luring customers with an initial offering, while earning from follow-up sales. The mobile telecommunications industry provides a good illustration of the bait & hook pattern with a free offer. It is now standard practice for mobile network operators to offer free telephone handsets bundled with service subscriptions. Operators initially lose money by giving away mobile phones for free, but they easily cover the loss through subsequent monthly service fees. Operators provide instant gratifi cation with a free offer that later gener- ates recurring income. Bait & Hook device manufacturers services free phones subscription contractual lock-in customers network network phones services n x monthly subscription 1 x free Bait & Hook of Free Mobile Phones n x monthly subscription n x monthly subscription VP CR CH CS KP KA KR R$ C$ n x monthly subscription n x monthly subscription n x monthly subscription n x monthly subscription R$ n x monthly subscription n x monthly subscription customers customers 1 x free free phones subscription 1 x free 1 x free 1 x free free phones subscription bmgen_final.indd 104 6/15/10 5:38 PM