With the decision of the New York Times to move to an online subscription model, I thought it timely to repost a piece I wrote in April 2009 on why free is not always a good business model.
In late February 2009 at the Future of Web Apps conference, Jason Fried of 37signals “stressed to the Web app developers and entrepreneurs in attendance that they need to start charging for their applications and that free is not the way to go.”
Are you one of the many solo-entrepreneurs and small business owners that actively seek out and use, free applications for your business? Budgets are tight and if you can get what you need for free, why not? I see a few problems with assuming that “free is better for business.” Let’s start with the root issue.
Our clients pay us for the work we do, that’s what keeps Chaos To Clarity going. We have to pay salaries, buy outrageously priced health insurance plans (not even the Cadillac ones), maintain office space, purchase equipment, and be wired, etc.—you get the point. Whether it’s a few individual developers or a company that creates a great application, people need money to sustain themselves and their businesses.
I can identify 6 models that businesses use to fund themselves in the tech world:
1. Charge upfront. Big companies like Microsoft and Adobe charge $100+ for their applications. Smaller companies (or individuals) also charge for their applications—just a lot less. There are plenty desktop applications and iPhone apps out there for $20 or less.
2. Sell full versions and give away lite versions for free. Companies like 37signals and Check Point offer free versions of their applications, but those versions aren’t as feature rich as the ones you pay for.
3. Other revenue streams. Google is able to offer online applications like Google Docs and Google Reader for free because they have unrelated revenue streams—like advertising and other paid services.
4. Donations. Many individuals and small companies like PocketTweets ask for donations to keep them operating and so they can improve their software. As long as they receive enough donations, they can keep going.
5. Private funding. Some companies, like Twitter, don’t charge for any of their services. They use private funding to support their operations. However, private funding isn’t forever. Eventually someone is bound to want a return on their investment.
6. Volunteers (hey, it’s what I love to do). Applications like OpenOffice.org and Audacity are developed by a collections of professional volunteers. Lots of people also create Firefox and WordPress plugins in their spare time. Voluntary contributors are likely to have day jobs, often as programmers, to support themselves.
All of these funding models have their place. Using the private funding model makes sense when an application is in beta testing (beta is a public testing time for applications before they’re made final). Beta tests give the developer a chance to hear from potential buyers before the application is officially launched. Once the application is finalized, it often costs money.
The volunteer model works very well for big open source projects because of the shear volume of people involved and they don’t rely on the project for monetary support.
When you’re looking for desktop and online applications for your business, you can’t just stop at “free” because it sounds good, you have to consider the business implications of your choice.
Free doesn’t necessarily equal poor quality. There are plenty of free desktop and online applications that are well-crafted. However, there are some cautions:
1. Lite versions. A lite version of an application may not give you all you need while the paid version gives you plenty of time saving features. It’s not worth the savings of even $100 if the paid version will save you hours of time and free you up to focus on your business.
2. Paid by donations. Applications that are supported by donations can be of high quality. If the application is critical to your business then you want to make sure that there are regular bug fixes and updates. You should also donate to keep the developer(s) going even if it’s only $5.
3. Beta. There is nothing wrong with using beta applications but remember they’re in testing and therefore likely to be buggy. Any application that your business depends on should be a final version, not beta.
4. Not beta, but free. Free is great for your budget but not for your business if it’s not reliable. Twitter is a case in point. It’s a great service but it’s sometimes so overloaded that you can’t access your account. Or a Firefox plugin that doesn’t work properly on the latest version of Firefox because the lone developer hasn’t had time to update it. However, free applications from large companies like Google are solid because of the full-time staff who devote time to their free products.
Free doesn’t necessarily come with support, much less good and timely support. If your business depends on an application and something goes wrong, what do you do? You can search on the their support forum (which may not be extensive) or hunt down the solution to your situation using Google search.
1. Paid by donations. Many donation supported applications have good support and documentation. As always if the application is critical to your business then you want to make sure that there is easy-to-understand documentation and access, via email or web form, to the developer(s) for support.
2. Beta. Make sure that there is documentation and support. The developers will be interested in your feedback but won’t necessarily provide you support if something goes wrong. So avoid beta applications for important business functions.
3. Not beta, but free. Same as above. Look for good documentation and support from the developers.
4. Developed by volunteers. Often software developed by volunteers tends to lack adequate documentation and support worthy of a business critical application. The exceptions to this rule are large open source projects like OpenOffice.org, whose community provides lots of support documentation and forums for help.
There’s nothing wrong with using free applications, but when it comes to your business make sure that it meets your needs as well as your budget.