Free vs. Paid Technology
By WellcomeMat on Feb 19, 2007 in WellcomeMat
Because WellcomeMat will eventually be a pay per usage service, I sometimes find myself defending our position on why and how WellcomeMat will succeed against “free”. I put the word free into quotes because nothing really is free is it? Anyway, I was recently talking to Aaron Sperling of vFlyer about this, and thought it would be a good idea to gauge the paid vs. free sentiment of our readers.
To me (and I am as fallible as the next guy), there is no argument against a pay per usage service so long as the company of mention has the best service around. Here is why I say this:
I have never come across a company that offers their product(s) for free, or through an ad revenue model, that has good support.
Free services…well…they don’t generate revenue. A company that gives its product away for free (unless over-funded) cannot hire and keep the best engineers around. And, without talented/patient people to answer support calls and emails, the hopes for effective support (prompt, thorough, and quick to resolution) go out the window. The collective meaning behind these factors is that this company cannot quickly fix fundamental flaws in their products/usability.
Tech companies with ad revenue models have to maximize page views, and overall volume on their site(s). This means that their support:user ratio is almost always way out of whack. Additionally, their money comes from (you guessed it) advertisers. Serving advertisers (maximizing profits) means asking users to fumble through content/page changes as much as humanly possible to maximize ad impressions. Worse in my opinion is the fact that BIG (site rank/traffic) often becomes more important than the quality of the experience for the user. Could we possibly come up with a better example of this than MySpace?
Popularity: 10% [?]
On Feb 19, 2007, jfsellsius said:
We have had long discussions about free v. paid services on the internet. This much we can share with you (the rest is top secret
The logic is as you say. Most go free with the hopes of driving traffic that will lead to advertising revenue (a tried and true method). Plus, if your exit strategy is a buyout, heavy traffic always attracts attention—the buyers always figure they can monetize better than you or leverage their traffic. MySpace and YouTube are perfect examples. Also, certain services are better suited to being free and can avoid many customer service issues. You also have to look at your competition. Unless you can differentiate your product/service with a USP or MSP, you may have to match their free product and hope to get market share in other creative (eg, WOM/viral)ways. Or you can use the craigslist model and give away what will attract the most eyeballs and charge for those services which depend on those eyeballs.
First movers also have an advantage in the space (see Netflix).
This is discussed by Guy Kawasaki in this video:
http://tinyurl.com/v62e3
[Reply]
On Feb 19, 2007, WellcomeMat said:
Well thought and said. And, to be sure, I come to this debate with a biased mind: I just saw first hand what happened to free services in a very, very heated market (anti-spyware). Webroot Software had competitors with similar offerings, began charging, and ran game on our competition so hard that the original competitors are more or less out of business. Honestly, they never had a chance. Webroot is now worth $500 million to $1B.
[Reply]
On Feb 19, 2007, Nick said:
Good post. I do see free models shifting to paid models and continuing a free level of service. Tech companies should continue or offer a free level service for the masses. Everyone loves free and will continue to use your service if it is free.
From the free service you can deliver multiple levels of service, tools, and brand marketing for clients above and beyond your free services. Positioning paid clients above free clients in your web interface is a good example of this (if you pay…you get more exposure, etc.).
Paid levels of services should offer more bells and whistles, at fair pricing for your client. The client should be able to see a return on their investment over the term they purchased. Pricing increasing based on advancing tools you offer and your increasing exposure (eyeballs visiting) your website. Then everyone wins and we all make money.
[Reply]
On Feb 19, 2007, WellcomeMat said:
WellcomeMat will have a more than solid free offering, and will charge for real estate/local business video postings. These postings are where people stand to have real, measurable ROI, and where we are most comfortable charging.
[Reply]
On Feb 19, 2007, Erik Hersman said:
Good thoughts Christian.
It depends on the service offering. When technology becomes a commodity in a specific vertical, usually the only way to monetize it is through some type of ad revenue plan. That is, unless you have some niche you play to or something unique to offer.
I actually like tiered plans the best, where you get some basic level of service for free, but the really good stuff is behind a fee. Personally, I’m happy to pay for services that I actually use and find useful. The problem is most web applications aren’t useful for me - enough to pay on a monthly basis anyway.
Tiered structures also let people try it out and help in overall conversion rates - assuming you have a good product.
[Reply]
On Feb 19, 2007, Kevin Boer said:
I agree with Erik — tiered service is the way to go. The problem is, we internet consumers (especially us cheap Realtor internet consumers) have grown accustomed to free. But if your service is good enough — and I certainly think yours is — enough of us will be happy to pay that you’ll actually have a sustainable business. The problem then, of course, is that innovation is happening so quickly these days that one of your competitors might soon come out with an equivalent service (that you charge for) for free…so you also need to be innovating. It’s a rat race.
[Reply]
On Feb 28, 2007, Tony - bienesraicesvideo.com said:
Totally agree with the approach on tiers of service.
We also have spent many late nights debating this issue. Our approach is basically if we don’t have to have human intervention we can do things for free. we have access to an automated workflow that handles many of the time-consuming and tedious tasks for us such as video conversion so if someone hands us a ready-to-go file, we don’t need to charge.
It logically follows that the more work involved, the more cost. Real customers dont seem to have a problem with this approach especially snce we do offer a free tier. We also do some “private label” video work for other sites, so if the work ultimately isn’t for use on our site, there there is a premium attached or at least a cost for use of the automated video processing infrastructure.
At the end of the day, some sort of fee structure is required to have a sustainable business. If no one is willing to pay at all, one may need to reconsider whether a business opportunity exists at all….
Tony
[Reply]