A Wired article from last month outlines the economics of the free electronics deals, and is consistent with the explanations I’ve given here.

Instead, they explained, Gratis Internet is paid a bounty for sending potential customers to sites like AOL, eBay or RealNetworks.



“We’re a marketing firm,” said Jewell. “We’re sending these people to our advertisers. We cringe when we hear ‘pyramid’ or ‘scheme.’ We’re more closely associated with viral marketing, with the subservient chicken, than Amway.”

…

The company has sent out more than $3 million worth of free merchandise, Martin said, including 5 million to 6 million condoms.



Since the launch of FreeiPods.com in June, the site has dispatched more than 2,500 iPods, Martin said, worth more than $1 million.



But in the last few weeks traffic has exploded. Martin claimed nearly 1 million people have recently enrolled in the program, though he said the majority are using phony names and/or addresses.

…

Martin said about 200,000 are using “confirmed identities,” and are in the process of receiving their free iPods. The process takes between six and eight weeks, Martin said. If all are redeemed, the company will be giving away $50 million worth of iPods.

Of course, most won’t be redeemed, but the determined among readers of this site can easily be among the successful recipients. Because it’s actually quite easy.

Canoso also declined to specify the advertisers’ bounties, but said they can range between $25 and $90, depending on the program and the kind of customer it attracts.



“The money we give these guys (Gratis Internet) is enough to fulfill the promise that the customers come in for,” Canoso said.



Canoso said while $90 seems like a lot, it is peanuts compared to the millions spent on TV and magazine ads, which don’t guarantee new customers.



“Companies like Columbia House (and) credit card companies, they’re happy to pay for customers,” Canoso said. “They’re happy to send out iPods because they’re getting customers in return. Capture is expensive, and they’re paying after they’ve acquired the customer.”



And while a lot of customers cancel after the free trial, enough don’t to make it worthwhile, Canoso said.

Take the example of the free iPod. You have to complete one of their offers and get five other people to complete offers. Assuming Gratis Internet receives $40/offer, they’re receiving $240 in income for each iPod they’re sending out – which basically breaks even. But plenty of people wind up with ‘extra’ referrals (more than 5, because they refer lots of people hoping to reach 5 and extra folks complete) – that’s profit. And even more folks start the offers but don’t come back and get all 5 referrals. They might stop at 2 or 3. Those folks are pure profit.

Lots of websites make money by marketing offers from companies like AOL and Ancestry.com. But it’s a hard business — why would a customer want to sign up for those things, and especially using any one website’s link? Gratis Internet has figured out that they can make alot more money by incentivizing customers to signup. They might make $40 for an AOL trial offer if they gave nothing back. But only a few people would do it. On the other hand, if they return 90% of the income but tens of thousands of people participate then they’re far better off.

I’ve already received my free iPod.

And my free Flatscreen TV (with built-in DVD and VCR) has been shipped.

And I’ve completed all the requirements for the free desktop computer.

So let me offer a few quick suggestions, most of which are repeats of earlier thoughts I’ve posted here.

Sign up for the sites. Just click on the links and create your account. It’s quick. You’ll be given a bunch of offers and asked to say “yes” or “no” to them. Just say no, because replying in the affirmative doesn’t get you anything – those offers don’t help you get free electronics. (They’re just an extra moneymaker for Gratis Internet.)

Check out the offers that you’re able to complete. My favorite by far is Infone, but it seems to be only sporadically available. If it’s available, jump on it right away and complete it. Why? Because it (a) credits your account instantly – most offers take a couple of days (b) is free and doesn’t even require cancellation – while you have to provide a credit card, you are never charged until you’ve used the service five times so just don’t use the service, and they’re a reputable company, and (c) they promise to send you a $10 Amazon gift certificate for free in addition to receiving credit for the free electronics offers.

If Infone isn’t available, consider signing up for a 45 day free AOL trial. I like this one because it doesn’t cost anything, and because there’s such a long time to cancel. Just be sure to cancel within a month and a half. Odds on you’ll be offered an extension of the free offer – some folks have reported getting AOL for free for a year or more. Personally I didn’t need or want the service, so I didn’t take the extension, but some folks might actually want to use this.

Yes, this is a pyramid scheme, no matter what Gratis Internet says. But it doesn’t cost anything to participate and there’s pretty great stuff for doing so. So there’s really no downside.