A large focus of web 2.0 applications and the web 2.0 craze is the push for information to be free. Taking a look at the prices for traditional media company stocks, the success of real-time information sources (twitter) and revenue increases for online advertising provides empirical evidence to that fact.
This drive for information to be free, however, also leads into software and web apps being free. Varying degrees of free software can be found, ranging from the free demo/basic account/trial period (all essentially providing a taste of the full version) to the open source community. The two extremes here each have their benefits and sustainable features:
Limited free software providing upgrade options.
Community-based open source being a collaborative give and take effort of many individuals with no excessive costs like employee salaries or marketing beyond hosting (which is nearing zero cost as well).
The dangers of free don’t lie with these extremes, but with middle of the road software and apps: closed systems to outside development that is given away for free. These applications are costly to maintain, market and develop but have no direct stream of revenue. Creative fund raising through methods including advertisements, donations, venture capital, acquisition hopes and offering related pay services can help cover these costs, but is it enough? Oftentimes, it isn’t. Even for large well established free software companies, struggles abound. Consider Mozilla’s case and Wikipedia’s case. These are, however, high-profile and well known cases. One look at the deadpool tag over at TechCrunch shows the little known but much more numerous failures of free software.
Although some may disagree, reputation and perception of a company are also greatly affected with a lack of direct revenue. More traditional companies are more likely to shy away from free software offerings if a direct line of revenue is not present. These companies have begun to embrace the power of free applications but, for the most part, only once these applications achieve mainstream success (e.g., twitter, facebook, youtube). Lacking an immediately apparent revenue stream leaves the customer questioning the app’s credibility and stability. After all, what use is a free application now if it won’t be around in 6 months after one invests their time and energy into it?
Offering software for free is surely more risky than having users pay for the service, but it is not impossible to do. Few have greatly prospered with the idea, while many others have failed. While not impossible to succeed with free, it’s a fragile state, even for the big fish. For all those considering going free, consider instead simplifying, “getting real” and charge directly. Your customers will understand and are likely to become even more valuable. Exactly how the will is for a future post.
This post was written by Victor Bilandzic.