14 July 2009
Free is the Future of Failure
“There will always be a company that replaces you. At some point your BlackSwan competitor will appear and they will kick your ass. Their product will be better or more interesting or just better marketed than yours, and it also will be free. They will be Facebook to your Myspace, or Myspace to your Friendster or Google to your Yahoo. You get the point. Someone out there with a better idea will raise a bunch of money, give it away for free, build scale and charge less to reach the audience. Or will be differentiated enough, and important enough to the audience to maybe even charge more. Who knows. But they will kick your ass and you will be in trouble.”
- Mark Cuban
We’re not completely against the Freemium model for web apps (heck, that’s what made DropSend really succeed for us) but there are some important things to consider before taking this route. Here are a few great resources to checkout when deciding on your web app pricing model:
- Freemium did not work for Phanfare
- When you succeed with Free, you are going to die by Free by Mark Cuban
- Jason Fried on why Free is the Future of Failure. Jump to minute 9:15 on the video or audio.
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Julien GENESTOUX
# July 14, 2009 - 5:41 am
the only thing I know is free is the present of debate ;)
Mike Ellis
# July 14, 2009 - 8:43 am
It’s interesting to see Jason Fried saying he “isn’t a fan of free” when the entire BaseCamp / BackPack / etc proposition is based on a Freemium model.
The challenge IMO is finding ways to get the “limiting addiction” bar right – too low (Spotify) and the service is *too attractive* even with the imposed restrictions of the free version. Too high (Protoshare) and you don’t get enough of a taste of the service to get you addicted.
BaseCamp as an example does this successfully. The service is *just* enough at the free level to show you *what it could be like* but not quite enough for you to be able to work with it beyond certain scales of complexity.
The point about the “free” model (not just freemium) is that it is a subtle mix of gaining market share, diminishing costs, increased network capability and application stickiness. It’s unfortunate that the argument is likely to be polarised into a Gladwell / Anderson faceoff when actually the devil is in the detail. This isn’t “everything in our industry should be free”, it is more about finding ways of leveraging network effects and scale to the best possible advantage.
Nick Barker
# July 14, 2009 - 9:01 am
Hey Ryan
Interesting links I’ve not seen before. Thanks.
There’s no doubt it’s a difficult choice. Many believe it’s the best choice. The debate around the Freemium model rages on. I think the individual decision depends on your market (B2B or B2C, etc), cost of provision and conversion rates.
Check out my post for links to people endorsing the Freemium model: http://nickpoint.co.uk/2009/05/28/to-freemium-or-not-to-freemium/
Best
Nick
Ryan Carson
# July 14, 2009 - 10:25 am
@ Mike – I think Jason has changed his tune. The link to sign up for the free plan is small and hard to find. He said in the video that the majority of their paid users started on a paid plan.
chris
# July 14, 2009 - 10:35 am
I agree with Mike. We’ve moved from the free account to paid accounts on various web software products including basecamp and zendesk.
To deny “free” wholesale isn’t right and neither is building a business based around “Freemium”. Or then again maybe it is. Apples and organes. As Andrew (Phanfare) said: “Moral of the story: trust your instincts.” … oh and (to paraphrase Mike quite badly) “do your homework.”
From a users prospective: I don’t think we would be using Basecamp if I wasn’t given the luxury of going from free to paid at my own pace. Not in the majority – but still a customer.
chris
# July 14, 2009 - 10:36 am
btw Ryan – your clock on the comments is out by an hour ;o)
arthur charles van wyk
# July 14, 2009 - 12:03 pm
The funniest thing about this post is also the most contradictory.
This blog sits on a framework that was FREE.
You probably developed the theme yourself so you didn’t pay anybody a cent. That was free.
You’re getting tons of traffic to this blog from a billion dollar company’s software – for free.
People (including myself) are commenting on here for free.
This post was brought to my attention by Adii on Twitter. So you’re getting your evangelizing done for free.
I think the Freemium model is completely misunderstood, misinterpreted and misconstrued. That too for FREE.
JOhn
# July 14, 2009 - 12:15 pm
you’re quoting MARK CUBAN?!?!?
smeade
# July 14, 2009 - 3:17 pm
Mark Cuban’s quote (and in fact the entire blog post) doesn’t make sense. I think I understand what he’s trying to say, but he’s not saying it. Cuban says “Someone out there with a better idea will raise a bunch of money, give it away for free, build scale and charge less to reach the audience”. That’s probably true. Yet, wouldn’t that be true if too if you charged for product or service? The big failure in his argument is that he doesn’t explain how FREE has anything to do with this fact of business.
He makes no argument that charging for your product or services can protect your company or lead to growth. None. At least Fried makes some logical points.
Ryan Carson
# July 14, 2009 - 4:27 pm
@ arthur charles van wyk
WordPress is something entirely different. It’s a piece of open-source software. What this post is focusing on are web apps with monthly-plan revenue models.
However, as I mentioned, I’m not entirely against the Freemium model. We used it for DropSend and it worked wonderfully. So great, actually, that the app got acquired for a healthy sum. Yay! :)
Ryan Carson
# July 14, 2009 - 4:36 pm
@ smeade
You said: “Cuban says “Someone out there with a better idea will raise a bunch of money, give it away for free, build scale and charge less to reach the audience”. That’s probably true. Yet, wouldn’t that be true if too if you charged for product or service?”
If you were charging for your service and you had already created a profitable healthy business, you wouldn’t suddenly lose all your paying customers to a new competitor. Yes, you would lose some, but the majority of your paying customers would stay with you because they’re already tied in and (presumably) happy with the service.
This happened to us with DropSend. A major competitor called YouSendIt got $20M in funding and released a bunch of new features, but we saw almost zero downturn in our revenue. This is because we had already established a paid customer base who were happy with the service and had no desire to switch. Especially with our most expensive plan ($99/mo) which made up 50% of all our revenue. Those folks weren’t going to switch over their entire company to a new system just because someone launched a new free service.
The web is a huge place and if you find a need in a niche, build a great product, charge for that product, then someone who launches a free version won’t destroy your business. It’s probable that your current customers won’t even know about the new competitor.
That’s why it’s so vital to charge from the beginning.
carlnunes
# July 14, 2009 - 5:07 pm
Marks utilizing an old world teaching. Acceptance of the death of your company; gives you insight into the reality of your own companies life cycle. Therefore allowing you to see and maximize your companies/products(web app.) profits. This conscience acceptance, of inevitable death of all living entities, is what enlightens the Buddhists.
Drew McLellan
# July 14, 2009 - 5:12 pm
I don’t always agree with a lot of what Jason Fried says, but I think he’s absolutely right in saying that people don’t mind paying for something that benefits them. It’s completely normal, and how the economic world functions.
There are some considerations to go with that, of course. You have to be charging a fair price for the benefits the product or service offers, but again, this is business as usual.
It’s something we thought about a lot when we launched Perch (a small CMS product – http://grabaperch.com ). There have been cries that it should be free and that it should be open source, but from our point of view it was quite simple.
If we charge a fair price, we can afford to build it and put the product on the market. If we don’t charge, there’s no business there, so there’s no point expending any energy. We weren’t interested in a service business around a free product – that’s not what we do, we’re web developers.
So we pitched it at a price that was designed to be less than a designer’s hourly rate (it’s £35 – around $57 US) figuring that if someone can’t afford that, then in the crudest sense there’s no money to be made form them.
Personally, I expend lots of energy doing things for the common good, providing free stuff and sharing knowledge where I can. When it comes to earning a living, you have to earn a living. You do stuff that people are happy to pay for, and you charge them a fair amount for it. There’s no shame in that – in fact quite the opposite. You work hard, you get paid.
@_nige
# July 14, 2009 - 5:18 pm
There is no such thing as a free business model
A free model is not sustainable
Like lunch, someone has to pay for it. If a business is backed by someones money and is delivered free to the end user, that business is not free. It may be free at the point of supply, that doesn’t make it free.
I don’t know about the rest of you but I need to earn money to eat and live. If I spend my time developing software, then as a business it has to generate revenue.
Otherwise it’s not a business – it’s a hobby.
Rosie Sherry
# July 14, 2009 - 5:33 pm
There’s also the point that not everyone wants to be the next Google, Facebook, Twitter, etc…
They provide stuff for free, but is it really free when you have to put up with ads, spam, etc…
Plus they are so dominant in certain areas that many people feel uncomfortable about it.
Paid models allow that extra bit of customer service. When was the last time you got rawking service from a free model? It’s only when you start paying that the majority of companeis start really paying attention to you.
Most of us don’t want millions of users. I’d prefer to have hundreds or small thousands with each paying reasonable amounts which would allow me to give them a rawking service.
I’d opt for the 1,000 True Fans model any day – http://www.kk.org/thetechnium/archives/2008/03/1000_true_fans.php
Ryan Carson
# July 14, 2009 - 5:40 pm
@ Drew
I think Perch is a brilliant idea. Have you thought about offering a monthly or yearly subscription? Something really premium? I bet a lot of design shops would pay $99/mo for some sort of super-Perch account.
We made 50% of our revenue from DropSend’s ‘Business’ account – and that was recurring revenue.
Ryan Carson
# July 14, 2009 - 5:42 pm
@ Rosie
Totally agree – much better to have a smaller number of paying customers, than a huge amount of free users. There’s a lot of merit in taking on a small niche instead of trying to be the next Google/Twitter/etc.
Pete Shaw
# July 14, 2009 - 5:46 pm
Give a million monkeys a million typewriters and a thousand years and they’ll give you the entire works of Shakespeare.
Give a 100 monkeys a hundred computers and 15 minutes and they’ll give you a miss-the-point blog post with many stupid comments.
Matthijs Langenberg
# July 15, 2009 - 8:28 pm
Don’t forget to check out Chris Anderson’s (free) book called Free. I have yet to find out if he can convince and explain me how the free serviced like YouTube can work. I found his book, The Long Tail, very interesting.
Pete Shaw
# July 16, 2009 - 2:30 pm
@MatthijsLangenberg – blah blah blah, blah blah blah… free. Waffle waffle blah blah blah.
Toby Mason
# July 16, 2009 - 2:35 pm
With the greatest respect, Chris Anderson doesn’t know what he’s talking about. His methods are flawed, and when quantitatively analysed fall flat. Peer reviews of his techniques make a mockery of him, and he should generally be shunned from the Intarwebs.
molamola
# August 8, 2009 - 4:59 am
Didn’t understood the last part :s could you explain better please?