Everyone wants to give everything away for free. Thats the way the internet should work, right ? Wrong. Let me change the conventional wisdom a little bit with this :
Free is only good if someone else is paying for it.
We dont want to waste our time with a product or service if its not worth anything. We want things of value, and we dont want to waste of lot of time trying to determine if what is being offered is something we would use or consume. The easiest way to make the determination ? See if anyone else is using it and paying for it.
When we see enough other people actually paying, and how much they are paying, that becomes our "due diligence" and market pricing mechanism. It also becomes part of the decision tree as to whether or not we would prefer a free version , or are willing to pay. For some, it becomes the determining factor on whether or not they are willing to steal rather than pay.
Which translates to the conventional wisdom that free is the way to go on the web as being wrong. I think many websites are making a huge mistake by going free only for their products. The real upside comes from being a hybrid, with both free and for pay versions.
When people actually pay for your product, you define a value to everyone. First you have to keep your paying customers happy. They want their money's worth. Which in turn, keeps you improving the product and the service surrounding it. Just as importantly, it creates a revenue stream for your company. Always remember this. Without a revenue stream, you have no company.
Of course, you can sell advertising around the product. But while culture of the web is such that most of us understand that if you get something for free, you accept advertising or limited features in return.
The challenge for businesses is figuring out what the right balance of price vs features and advertising is.
At Filesanywhere.com,an online disk storage company, we have a variety of offerings from free to thousands of dollars, depending on the needs of the customer. It works great because the perceived value of the free version is off the charts because everyone knows they are getting a subset of a product that is worth thousands of dollars to corporations. Its a bargain to them when they can start with the free version, see if it meets their needs, and then choose the higher end offerings if they need or want them.
On the other hand, I have tried versions of competitors of theirs, that are offered exclusively for free, and some of the products were good, but the advertising was so intrusive, it wasnt worth the hassle and I didnt have an option out.
The challenge of pricing and product options is going to become more and more complex in a digital world. Because the cost of creating and distributing one more unit of a digital product, whether its a song, movie or piece of software or anything else is essentially nothing , its very , very tempting to want to give it away and generate revenue via advertising or elsewhere. Thats a huge mistake.
Whenever you have people willing to pay for a version of your product. Take their money and return them a great product and value. Not only will that revenue act as a cash source foundation for your company, but it will define the value of your product to those who only want a free version. That in turn will create even more demand for both and leave you with happier customers
Free is only good if someone else is paying for it. .
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Reader Comments
(Page 1)2. Mark, seems that something is missing in the article:
"We are at the point on the web where people understand that if you get a free version of something, that there will be some sort of advertising component involved. The consumer ????????"
Thanks for your insight, I think you have a very valuable vision of the market (specially love your article about Youtube been a damage for independent media producers because they don't count distribution cost)
3. I think the sites that will get it right will offer 3 options:
1.A high end paid premium service that someone can't live without.
2. An ad supported low end service that pushes people into the product.
3. An option to buy out ads for life on the low end service at a pretty cheap price.
I think the really tough question is when it comes to content. The NY Times went free because they could open up their archives to search engines and monetize it much better at that time. The key words are "at that time". If everyone offers ad supported products, advertising will get very cheap.
Posted at 4:12PM on Jul 10th 2008 by SportsTechNow.com
4. Why the dichotomy between free and monopoly pricing? As recently as the sixties, there were lots of record labels, many book sellers, etc. Over time, there was massive consolidation, but it was based on monopoly pricing - since, financial and technological barriers kept out competitors. Then, the digital domain and easy-to-get technology created alternatives to the conpyright monopolies. Bands could self-produce and web distribute their music; writers didn't need a publisher, etc. BUT, the monopolist-conglomerates didn't change their business models, and they've suffered a lot of leakage from their insular kingdoms.
Now, work can be freely distributed, but it doesn't have to be sold for free. The new model has to mirror the new technology. People still have as great a desire for unique, creative, expressive works, but they have no desire to support monopolies who want to control the choice, price and distribution of those works. It doesn't have to be free, and it's not going to be monopoly priced.
5. I wrote a post over at Mashable that also questions this idea or expectation that everything on the web should be free. I think it ties in to what you are saying Mark
http://mashable.com/2008/07/10/entitlement-of-free-needs-to-go-away/
Posted at 4:49PM on Jul 10th 2008 by Steven Hodson
6. I'm surprise how much of this post I agree with honestly. The best product (web related) I use on the internet are the one that tier their pricing, and offer a "mostly ad-free" free version of that product. After a year or less of trying the free version, I've become semi-dependent on the product so I have to buy one of the premium packages just to keep getting what I "need". It's an excellent model.
7. I dunno. Could it also be "free is good if it can lure people in and convert them to paying customers at prices they never knew about?"
The lack of transparency into what happens to pricing as you get into higher amounts of data bothers me (how much is it if you have >5GB on an individual plan?), and as soon as you are over 1GB, there are better deals out there (.Mac comes to mind, at $100/year for 20GB).
And while I am on transparency, the "we" next to the Filesanywhere.com link was not entirely clear to me so I looked it up ... in case it is also not clear to others, Mark has equity in this company.
Posted at 7:15PM on Jul 10th 2008 by Marshall Burchard
8. "Free is only good if someone else is paying for it."
I'd be willing to bet this blog is hosted on a Linux or FreeBSD server using software that is completely free and absolutely the best at this particular task. The software is good (or you would use something else) and completely free. If you are in fact using Linux or FreeBSD I hope nobody hoodwinked you into paying for it. It is free to everyone.
BTW, Google and Yahoo both use either Linux or FreeBSD on all their web servers. Must be a good product. And free. I think that debunks your bold statement.
From MC:
And what company owns those products ?No one. THe point isnt that no one uses free products. Its that if you have a company and you think you can make money giving away stuff, consider this...
Posted at 8:34PM on Jul 10th 2008 by Jeff
9. Mark, you should really read some of TechDirt's analysis on the whole free thing. Like http://techdirt.com/articles/20080522/1545021204.shtml
Their position, which makes tons of sense, is that you give away things with low-to-no marginal cost (bits, for music) in order to promote scarce goods which generate revenue (concert tickets, for music).
There's a lot more to the theory, and even if you don't agree with their position, I think it's some pretty good analysis and commentary.
Posted at 9:21PM on Jul 10th 2008 by Brooks
10. Ah, the whole "future of the long tail" where everything is free debate. I agree it's just not sustainable.
Posted at 10:35PM on Jul 10th 2008 by Real Estate Investments
11. Two questions I don't understand and need clarification on:
1) How would a company that distributes movies, music, apps, PPV events (can't wait for Fedor vs Sylvia! :)) generate revenue if many of the people would find extraneous resources to access them? For example, I don't have HDnet but I can bet your ass that it'll be on YouTube, Dailymotion, etc the very next day. Wouldn't it make business-sense to allow non-HDnet subscribers to access the fight via online stream for a small fee?
and
2) Is it always wise for a company to start with an immediate source of revenue? If that's the case, how do you explain YouTube, Firefox, etc?
Posted at 3:29AM on Jul 11th 2008 by Calvin
12. Hi Mark,
Amen to that Mark! the way I see it giving away stuff for FREE can make or break your business if not utilizing correctly...
Thanks'
Albert
Posted at 3:39AM on Jul 11th 2008 by Albert Hallado
13. Never use the phrase "conventional wisdom" twice in the same blog...let alone over the course of 15 or more blogs you've written.
Seriously though, I kid you! :)
I agree with your current posting...giving shit away for free sucks for me. I hate doing it, but you do have to lure people in and get them wanting more... give them the juicy stuff for a small fee.
I've been struggling with that for a long time. I've got a decent career job posting site down here in Southern Maryland...we have a huge technology sector down here but all of the major job boards ignore our geographic area.
Monster.com only covers Baltimore and D.C.....I mean, come on, Maryland is bigger than that! How about all our military bases and the government contractors that surround them? (That's who I cater to).
Anyway, in one year, I've lured over 3,000 members to my site. None of them pay of course...they post their resumes and I try to pimp my services to the local employers.
That only goes so far though in a local market.
My goal is to make $5 a person (per month) off of each of my members.
The solution?
NO, I'm not going to review resumes.
NO, I'm not going to create a bunch of bogus products (like resume blasters)
NO, I'm not going to hold job fairs (anymore).
I'm starting a small business subdomain of the site...to show budding entrepreneurs how to become successful, or to show those who are thinking about going into businesses for themselves, to "just do it".
I've been seccessful on a small scale and share lots of wizdom, business tools and know how, not to mention the local networking aspect of this area that I live in...in a nut shell, I'm going to create a small biz social networking site for this area...and people WILL pay for it.
I know I can do this again. I once created a small business magazine (digital only) and made several thousand dollars off it when I sold the company (I'm a microscopic Mark Cuban!) :)
So there you go...thanks for your time bro.
15. The points you make are spot on. The term used to describe the model you are referencing is Freemium (per Wikipedia: Freemium is a business model which works by offering basic services for free, while charging a premium for advanced or special features. The word freemium is a portmanteau created by combining the two aspects of the business model: free and premium.[1] The business model has gained popularity with Web 2.0 companies.[2]
The challenge in this model is to determine what part of the offering is free and what part can attract enough revenue/profit to offset the cost of supporting the overhead of a free offering.
Choose wisely.
BTW, while a revenue stream is very important to a business, it is not a business unless there are profits. A profitless business is a charity dependent on someone to write a check to keep the doors open.
Posted at 11:23AM on Jul 11th 2008 by Chas Humphreyson
16. "Free is only good if someone else is paying for it."
Not always, because you can do something for your eg. skill, but you can offer that without paing for other peple (eg. Linux, Firefox)
Posted at 11:42AM on Jul 11th 2008 by Kataster Nehnutelnosti
17. There has to be some value, even perceived value, before you offer an item as free. Offering something that has a price tag attached to it for free makes people feel special.
Offering something for free builds trust if it's a worthwhile product. So I'd say offer things for free if you have an end goal in mind or backend product.
Always good stuff Mark!
Ron
18. There's the key line: "Without a revenue stream, you have no company." The free stuff gets the market share. The paid stuff keeps you in business. Companies like google, facebook, etc wouldn't have built any market share if they weren't free. They wouldn't still be around if they didn't figure out a way to make money.
Posted at 1:49PM on Jul 11th 2008 by Todd
19. Personally, I believe most people take free for granted and fail to see the value or appreciate it. I wonder if that notion is cultural or global.
Posted at 7:41PM on Jul 11th 2008 by Bonita Springs Real Estate
20. you have a very good point however free does have its place. is it your opinion that Google’s search results should be pay per view? I give away free information on my site. after reading your post I am considering looking for ways to implement your tiered approach. I’m not sure it's a good idea but it never hurts to think in a different direction.
Posted at 10:51PM on Jul 11th 2008 by Shawn Shepherd
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1. Mark,
Check out 'The Onion' lately?
http://www.theonion.com/content/news/mark_cuban_buys_sports
Posted at 3:56PM on Jul 10th 2008 by Ram