We’ve been talking about the basic wonder of putting a price on your product for such a long time that it almost seems trite at this point. I certainly thought that point would have lost propulsion long ago, but I keep being surprised by the contrary.
It seems that the web has been so thoroughly infected by the memes of “the future is free”, “we’ll all live from ads”, “VC money will get us there”, and “acquisition is nirvana” that it has almost lost its faith in the simpler ways.
I’ve been approached by a great many entrepreneurs since the Startup School talk who all tell a similar story. They found a niche, made a product for it, and then thought “what the hell, let’s do something crazy!” and decided to charge money for it. To their surprise, it worked and they’re paying the bills and growing.
While that’s fantastic, it’s also perverse. There shouldn’t be any element of surprise unveiled from that order of actions. It should come as a natural conclusion, but it doesn’t. Because the startup culture has caught this disease that there’s something unnatural in being profitable from the get-go. That making money early means you won’t make it big later.
It’s depressing and it’s wrong, but I also think it’s going to change. I think the days of the traditional San Francisco startup approach are numbered. It’ll be flushed down the drain along with CDO’s and zero-down mortgages.
On the other side we’ll have a world where having a price will be the expected. A world where Jason can’t make headlines saying “free is not the future”. A simpler world where most people, even on the web, will live from direct customers.
I look forward to that day.
Philip Arthur Moore
on 09 Mar 09Do you think that the popularity of Open Source software on the web has in any way propelled the thought that companies or individuals who charge for their services or software are ‘eeeevil’ or perverse? As a consumer, I’ve always assumed that services and software will cost money unless otherwise stated. In fact, I’m more surprised when something is “free, as in beer!!!” than when there is a price tag on it.
A. Casalena
on 09 Mar 09I obviously completely agree :)
From another angle: 4 or 5 years ago at Squarespace we had both free and paid plans. After a year of having both, it became readily apparent that the free users - by and large - just didn’t care about the product the same way the paid ones did. Similarly, since the quality level on the free sites were so low it wasn’t really clear how we could ever figure out what to do with that base of users. Free vs. paid weren’t just different pricing strategies, they were entirely separate businesses.
Drawing the line and focusing on people who really cared about our product was one of the single best things we’ve ever done.
Daniel
on 09 Mar 09Well, I guess we can thank Netscape for a lot of it. Most people probably think “browser = internet” and when the browser is free…
That’s of course overly simple, yet Netscape was probably the trend-setter in many ways. The internet rode in on the back of free-as-in-beer software (the browser), and was built on equally free open source servers, and delivered through a utility (the telephone) which was ubiquitous and – if not free – inexpensive. Add to that, that many people first got access through their workplace where, again, they didn’t pay for it. Pretty much everything lined up against for-pay internet services.
Jamie Stephens
on 09 Mar 09I agree that this is where the market has to go. It is strange that there is even a hint of feeling like you are doing something wrong when you think of putting a price tag on your product or service. I am about to release a service where all of my competitors are offering the same/similar service for free (or have a free version). Much of the advice I have received is that I should do the same to build up my user base more quickly. Of course I want a large user base, but a large non-paying user base is of little use to me when I am in this for the long-haul. And if I have built crap, then people will let me know by not paying for it. That’s how things should work.
Matthew R. MacPherson
on 09 Mar 09I am always surprised that people talk about something like Twitter, and how much it’s going to be worth one day, far from now: “yeah, it’s worth a tonne because think of the ads or something you could tie in with it”—but what is profitable about it, or some other startup, now?
Personally, I’d be scared as heck investing in a company whose strategy for making money was “give us money”. Some of these startups are great ideas and doing cool things, but I don’t get why, for example, Twitter isn’t charging people for sending them SMS tweets or something.
Magic Toolbox
on 09 Mar 09We sell image zoom tools for websites. It’s software and there are plenty of people that believe software should be free. But free always has a catch. In the case of software, it might not be very good, it might not be updated regularly, there might not be any support and so on.
Free is great, but it only suits certain circumstances. Ideally there would be a choice – some free, some paid. You choose which is best for you. There are always people willing to pay for quality.
People email us every day thanking us for our quality tools and fast support. By getting paid for what we do, we can ensure that we will always be there for our customers and we’ll keep getting better.
Sash
on 09 Mar 09supply and demand friends – supply and demand.
John Athayde
on 09 Mar 09I think it comes down to people being cheap and the numerous (digital and physical models) of free things that are paid for by advertising. It’s so pervasive in the print/periodical world that I am inundated by “specialty” magazines that offer “free” subscriptions. I turn almost all of them (with the exception of “TapeOp” and I would gladly pay for that one). They’re mostly advertising and it frankly distracts from the content, namely, because it’s almost impossible to find amongst the sea of glossy four color sparkling ads. I assume with the current economic downturn that these will start to disappear, as there simply isn’t the budget for advertising.
It probably began as a backlash to the massive software packages with huge price tags but at this point it’s a mix of lack of belief in product or decided marketing exposure tool. The latter is fine (I reference Jason’s “Emulate Drug Dealers” slide: http://www.flickr.com/photos/boboroshi/92765193/ )
I’m far more likely to pay $5 or $10 a month to use something than to buy it outright for $500, even though i very well may end up paying $500 for the SaaS over time.
Timothy
on 09 Mar 09There is a reason (most) people do not charge for goods or services that are worth money. One is Ads, which, as stated above, are not fulfilling enough.
Another (valid) reason is that as a free site or service grows the owners can flip it. They can sell it for a large amount if the site is popular. And free induces popular very often. Look at how YouTube was sold to Google, or how MySpace was sold.
Another way to use free to your advantage is to employ freemium. This is a free good or service with a premium (paying) option. The free will suffice but the premium has its clear advantages. You pull people in with a free service (no risk, right?) and then they become more likely to pay for an upgrade.
So, in total, free services are not free just to be free. If it is free just to be free then the people running it are doing it has a hobby. There must always be an incentive to do something. Whether it be payment up front, payment down the road, popularity, voicing a brand name or investing in something that could be.
loqu8
on 09 Mar 09We charge between $59 and $99 for our software products, and were delighted to have sales. I’m interested in talking to folks who have successfully implemented the subscription model.
Josh Catone
on 09 Mar 09I blame Google.
Most of the big dot com flame outs, if I recall correctly, were chasing Amazon and eBay. Sites like Pets.com, e*Toys, Beyond.com, Boo.com, etc. These high profile busts sold products…
Then Google comes along - and Yahoo! and a few others - and survive and make billions selling ads and giving away their product for free. Would people have paid for Google—probably, but certainly not as many as use it now, and certainly they wouldn’t have made as much money.
Then Google starts making and buying addon products - like Docs and YouTube - and giving them out for free as well, subsidized by their search ad billions. That makes many smaller / newer companies think they either can emulate that success with free (after all, selling stuff didn’t work out so well for so many), or that they need to compete on price to compete at all—which means free.
Or I could be completely wrong. Just a snap theory. :)
Damon
on 09 Mar 09The problem that many run into is that what they make isn’t worth actual money to anyone, but it is worth “free”. If that’s the case, you have no choice but to roll the dice on the “get a lot of users and sell out” game. See, someone bigger will be able to extract cash from your users, even if you can’t. That’s the hope anyway. It’s just a different, perfectly rational approach – neither bad nor good.
By the way, CDO’s and stupid mortgages will be back. You can bet on it.
Anonymous Nick
on 09 Mar 09I totally agree; tho, its a pain to pay for stuff online. Almost as bad as writing a check at the grocery store.
I believe more people would pay if the process was easier to develop and consume.
Paypal has done wonders by bringing online payment to the web; however, when I see the “pay with paypal” button I imagine that I’ve come to a brick wall that I have to scale. That brick wall has a convenient ladder and is only a few feet shorter than the alternative where I enter all my CC info for every purchase. It’s still a brick wall.
Is there an equivalent of “Touch n’ Go” online? Has ActiveMerchant implemented Paypal subscriptions?
Jeff R.
on 09 Mar 09This topic has always intrigued me as I am becoming more familiar with the ‘Getting Real’ philosophy.
However, the one point I struggle with is how to charge a fee for applications for the general public. I see how one can charge money to small businesses for web applications, but what about the general public? It is my impression that the general public has been trained to expect everything online for free.
Does this mean that start-ups should not be focused in that segment, and only focused on catering to businesses? Perhaps my assumption that the general population expects everything online for free is off-base, but I would like to hear other people’s opinions.
John
on 09 Mar 09Important conversation. And I don’t think it’s as easy as people are making it out to be. For its entire history, the world has been monetizing information. Only within the past couple years has information become digital. Never before was information so spreadable. And we think we are going to “solve” that by an article or two?
If I were to place bets, I’d say: Information will be free. Services will cost something.
Information = text (books, articles, rants); music; teaching; how-to; etc. | Services = filters, unique tools, reputation; etc. | Cost something = currency, real name, eyes.
Graeme
on 09 Mar 09Free is what works for some things on the web. It works for content (paid does not with very few exceptions), it works for search.
People therefore tend to assume that it is what works for everything that is delivered over the internet.
Of course the economics of a lot of web apps and even some content is completely different.
If people are regarding paid as evil because of free software, they are completely missing the important issue – its about control not cost.
Antonio
on 09 Mar 09I’m beginning to loose interest on this blog and company because of the slight arrogance tint most of their posts feature.
Just because this paying model is your model, it doesn’t mean everyone else’s free model is wrong.
I understand your points of view, but why do you keep throwing everyone else just because it is not your point of view. Maybe I used to agree with your points of view, and simply don’t anymore. Seems natural to move on to other opinions and points of view.
(Might need some copy here, I used the “point of view” words too many times.)
Aycan Gulez
on 09 Mar 09This all happened before, and will happen again. During the Internet boom in late 90’s, virtually everything on the web was free. In the recession that followed, companies started to charge for their products in order to survive. Then the economy got better, and free was all the rage again (aka web 2.0). We are in yet another recession now, and a lot of companies are forced to face the realities, and start charging for their products.
jhoysi
on 09 Mar 09The important distinction here is that while paid products/services are of a higher quality than free apps, that does not make them automatically better. There is a strong market there for both the free apps and the subscription services, and it really comes down to what my particular needs are for the service to perform.
Savvy customers shop around. If you’re being left out of a share of the market to a free app, you wouldn’t have earned those clients anyway. And if you did, you would have eventually lost them in the end. They are not looking for the service you provide because their priorities are different than your target market.
Glade
on 09 Mar 09For me the biggest differentiator is public software vs. business software. For personal use…I rely on free and I’m more willing to accept software and services that are “inferior” or have flaws so long as it’s free of charge. Once in a while i’ll fork over some money for a program for personal use…but not very often. Basically, for personal use, I place other products or services higher on the scale than I do software products and services. Beyond this, my regular day life has much simpler needs than my business life. In my business life…it’s much different. The value that software gives me for making me more efficient is much higher on the scale and I have less tolerance for inferior products. I use software that adds value to my business. There will always be that tradeoff. In addition to this, there are many more functions that occur day-to-day from a business perspective that can be made more efficient by software, therefore value is more readily measureable. Businesses will pay for software that saves them more than it costs…it’s as simple as that. If you are charging for software that doesn’t offer any more value than a free program…you’re not going to make much money.
Nik
on 09 Mar 09It is a lot easier in B2B, to the point where businesses prefer paid over free so that they are assured of support etc.
B2C is a different story. It is hard to get consumers on the web to part with cash for software (the average number of software purchases over the lifetime of an average PC is 6 – and that includes bundles software – so your job is trying to become on of those 6).
The types of businesses that require a large up-front capital infusion are those that target consumers and are either ad supported freemium based – both of which require your audience to reach a critical mass (which takes time, and burn rate).
It doesn’t suite everybody to charge for access (imagine if Zuckerberg attached $5 a month to Facebook), some need the capital (and often when these types of businesses are hits, they are usually big hits)
Ricky Irvine
on 09 Mar 09I think it has pre-web roots in businesses like Walmart and others following their cheap lead. More on that.
Chris Carter
on 09 Mar 09Cheap != free, Cheep == cheap. Revenue, cashflow is still achieved on cheap, and if you get enough volume you can often achieve profitability on cheap due to economies of scale. Whether you agree with it or not, those are what economists call the laws of economics, and they haven’t been proven wrong that often, especially not with products given away for free.
Are there any companies which give products away for free (and don’t have some kind of other revenue generating product or service) that have lasted more than 5 years on anything other than investor money? Frankly, I think that companies operating on ONLY investor money for longer than that are no better than a Ponzi scheme. SOMEBODY is getting screwed.
Like it or not, operations cost money and that money has to come from somewhere.
Nathan L. Walls
on 09 Mar 09@Antonio: David’s not saying everyone’s free model is wrong, he’s saying not everyone’s free model is right. For the past number of years, the conventional wisdom has been to be just like MySpace or YouTube or Facebook. Take lots of money, get eyeballs/ads, scale quickly and cash out.
Except, those examples are not conventional in any sense of the word. David (and Jason) are right to point that out.
I suspect the currently common approach is economically unsustainable and encourages what seems little better than gambling instead of building a business. By and large, it means gambling with someone else’s money, which means using their system for being that one in 10 business that “makes it.” That’s when they even let you play in their casino. Sure there’s a big payoff, but, just like the lottery, I’m not likely to see it. I’d rather spent my time building a business that looks the way I want it to and will be returning my investment to me. So, I need to look at the odds-on, best way to make that happen.
How does a business that cared about nothing else other than flipping itself for 10x the initial investment, go forward after acquisition? It doesn’t have any other culture or experience to draw upon. How does it act as a decades-long engine of income and happiness for its founders and employees when they forgo any amount of happiness and burn out in 18-months?
Peter Urban
on 09 Mar 09It’s so simple. Make your stuff free if you want to enter the lottery of possibly being sunffed up by google. Charge for it if you want to build a business. If people won’t pay for it then your chances that Google might snuff you up are zero.
Ellis Benus
on 09 Mar 09Great point. Again…
My problem is still being in the Service mindset.
Keep up the good work.
Nathaniel Talbott
on 09 Mar 09I wonder if part of the reason people have opted for ads is because historically it’s been so much easier to implement. It seems like a quick win, and a way to start making money while you figure out how to “charge for the darn thing”. Even DHH tells the story of launching Basecamp and it taking way longer than expected to get subscriptions working, and I think that’s a common experience.
(Shameless plug): That’s why my co-founders and I started Spreedly. We wanted to spend our time building businesses, not billing systems, and found there was a huge gaping hole in the payment space. Spreedly let the No Kahuna team go live, collecting money, within 2 days of project start. Our hope is that Spreedly will lower the barrier to entry and convince a lot more businesses its not scary to start charging for services as soon as they’re providing value.
Eric
on 09 Mar 09This is so spot on! Having been through the dot comm bubble I can see the writing on the wall once again. Even with ad revenue it doesn’t make sense that a business shouldn’t charge for their services. Especially if they want to grow and last.
Jeff
on 09 Mar 09You can get a free trial to WeatherTAP.com (I think it’s for two weeks), but it’s never been free. Some complain, others subscribe. No ads so far on the site. That’s been their model since day one.
Joe M
on 09 Mar 091) I agree and will charge for services built for use on the web.
2) Things that are free have no intrinsic value. I used to use Myspace, it is free… I moved on when I realized Facebook was better, and will move on again when something new and cooler comes along. I guess I already have, Twitter is a bigger fascination to me than Facebook.
3) Google has no value, if something better were to come along, I’d use it… Would someone build it already, I’m due for a change and am beginning to question their “do no evil” mantra.
3) If you want to ride a wave or a bubble, go for the freeware. If you want to build something sustainable over the long term, charge for it and focus on continually making it better. The better it is, the more people us it and talk about it, and consequently, more people pay you… What a terrible problem to have. Be great, charge a fair price, laugh at the idiots who are shutting their doors after VC drys up.
Nick
on 09 Mar 09I think this point is best illustrated by the Cook’s Illustrated article from a few months ago Cooks Illustrated.
If you have a high quality product, you can expect people to pay for it. But don’t expect people to pay for a mediocre product. Since the web is filled with mediocre products, the expectation is free.
Martial
on 09 Mar 09I was describing a web-based product to some potential customers and invited them to be part of the beta testing. They, from several organizations, looked at me like I had three heads and said,
“Charge us for it from day one. If it works, we’ll pay. If it doesn’t, we won’t.”
Lesson learned.
Shane Vitarana
on 09 Mar 09The App Store is showing that people are willing to pay for apps for their iPhones, so why shouldn’t they also pay for web apps? I think the App Store is a good wake up call for the “web 2.0” community. Micro-payments + volume = profit.
Happy
on 09 Mar 09Micro-payments are fine for the App Store, but I’m going to go for macro-mungus-payments. The university where my brother teaches uses online classroom software they paid six digits for. My Dad’s motorcycle club is happily paying $15,000 for online event management software to run their rallies. My kids’ school just finished a fund raising auction using a $400 piece of auction software. My Realtor just signed on with an online property update system at a non-trivial cost. On-and-on I could go.
Because people know I’m in the software business, they tell me all the time of online software they or their companies are seeking, buying, or using. Rarely, if ever, do they say “We were really expecting a free solution”. People don’t buy software to use the software. They buy it because it saves them money, saves them time, makes them look professional, or is fun to play with. All of these things have value. We just don’t see it because our view is too myopic.
There is a small world of software users that sees this free-expectation phenomena. Yet, there’s an even larger world out there – people that have never heard of 37signals, “Web 2.0” or VCs – in other words, “the general public”. These people expect to pay for software in their personal and business lives, just like they pay for other tools they use.
We, as software developers, should be marketing to those people – “the general public” – instead of building traffic from others within our little community.
Who cares how TechCrunched you get, if all the TechCrunch readers expect free software??? The real win is to get “Crunched” by the major blogs in your customers’ industry.
Scott Miller
on 09 Mar 09Great post! B2B SaaS is where its at for generating revenue. Find a niche that you have extensive domain experience in. If you are a hacker, find a partner with the domain experience.
The “niche” is your friend. Don’t try and create an app that appeals to the masses. Someone with more resources will eat your lunch.
Form a focus group of 5-10 companies in the niche market. Listen to their pain.
Get going!
Brett Morgan
on 09 Mar 09There’s two separate things in here.
There are products, like BackPack, BaseCamp, etc, that have an obvious value in and of themselves. As a user of BaseCamp, I understand what it is that using this service will give me – a better way to organise my projects.
However, things like Twitter are different. The value of Twitter, or FaceBook, is mired in network effects. Same with the value of a phone system. A telephone network with one user has zero value. A telephone network with everyone on it has stratospheric value.
Thus getting big quick matters if, and only if, network effects are a core component of your value proposition.
Al Abut
on 09 Mar 09I’m down with paying for products online but speaking as a longtime 37s fan (from before David even joined) can we just stop using the bay area as slang for free startups? I feel like I’m watching Bill O’Reilly attacking “San Francisco values” – there’s no need to make this a culture war. Yeah there’s a lot of the “give it away free, make it up in volume” startups out here, it’s because there’s way more startups out here, not that they’re all of a different type.
Richard Walker
on 09 Mar 09I blame Richard Stallman, MIT, DARPA, NCSE, Mosaic, Marc Andreessen, GNU, Emacs, Linux, Open Source, BSD, BitTorrent, PBS, WebVan, Pets.com, and Sarbanes-Oxley. Hardly a culture war… it’s very hard to run a business and make payroll. Another reason for mandated basic health coverage… it would be a big boost for startups and small businesses (that now have escalating costs for basic health plans)
Lawrence Krubner
on 10 Mar 09I live in Charlottesville, Virginia, USA. In my town, the local daily newspaper is dying. The two free weeklies are doing great. One can see the same pattern across the country: free newspapers are thriving, while for-pay newspapers are dying. And we are talking about ink-on-paper newspapers here. Free is spreading, for-pay is shrinking.
Given this trend, I find it very hard to believe that the web is suddenly going to become for-pay. At least in terms of content sites, I doubt it.
Lawrence Krubner
on 10 Mar 09“This all happened before, and will happen again. During the Internet boom in late 90’s, virtually everything on the web was free. In the recession that followed, companies started to charge for their products in order to survive. Then the economy got better, and free was all the rage again (aka web 2.0). We are in yet another recession now, and a lot of companies are forced to face the realities, and start charging for their products.“
So, during the next boom, companies will be forced to face reality and make everything free again? That is the logical end point of your “things move in a cycle” reasoning.
During the next boom, ad revenue will be abundant again. Companies would be fools not to start building businesses around that eventual reality.
Happy
on 10 Mar 09I think a couple commentators here are exactly right in that it depends on the target market and product purpose.
For products requiring network effect and that have exponentially increasing value with a larger user base, I believe we’ll never see a pay option thrive. I’m thinking Craigslist for example. Craigslist’s ability to offer FREE classified ads is cited by newspapers as the reason they’re going under. In cases where users have fleeting or non mission-critical interaction, the free model is here to stay.
Yet, putting network/community type apps aside still leaves plenty of other offerings though where there is money to be made in charging direct-to-user.
Hippy
on 10 Mar 09I really don’t understand why it’s hard for people to pay for things on the internet, what with online shopping and credit card verification and the like.
Sean
on 10 Mar 09I agree that people shouldn’t be afraid to charge for a product or service they offer on the internet. I think most services should use the Freemium model – offer a basic service for free, charge for more features/bandwidth/etc. This gets you more paying customers in the long run, and makes you “bigger” which means more people are talking about you. This doesn’t work for everyone, but I think in most cases it makes sense.
Abhishek Parolkar
on 10 Mar 09I agree upto certain extent, but a point missed out is that, not all kinds of apps can ask people to pay. Apps that are for small businesses (eg basecamp), can soon convince users to pay for it. But end-consumer apps (facebook, orkut etc) are driven only on eyeballs. Any startup doing end-consumer app faces big problem by putting a price tag. Apps on internet have always been game of mass movers. Most of the time app’s value is just not understood until it is used by thousands of people and once you have reached userbase of enough size, and created buzz around your app, Your users will take responsibility to make it big. And thats when people will be ready to pay you for your app. Take the case of linkedin… Would you have paid to create profile with linkedin , when linkedin was a startup?
Jacob Baer
on 10 Mar 09I think if Facebook started charging something like $5/month after a 1-month free trial, in 2009, a lot of people would start paying for it. Sure, another social network could pop up, but you’d be paying for access to a site that’s big enough to have a lot more of the people you know.
It’s as useful a social utility as the cell phone, which we pay $50/month for without blinking. Do you really think that, because it’s online, that many people would get rid of it to save $5?
Greg Spira
on 10 Mar 09Jacob – Yes; I think 99% of Facebook users would drop Facebook if they tried to charge $5 a month
I think there are a number of different reasons for this general phenomenom
Content sites went free because those that tried to charge generally didn’t succeed. I remember when USA Today came on the net they tried charging; no one subscribed. Slate is perhaps the most famous case of a site that tried a pay model for a year and found it unsustainable.
Also, most publishers of content have big dreams; they want to grow. Doing small but deep content sites that make a little money but have little growth potential is not something that is all that appealing to people stating a business venture. And writers by nature like the idea of having their material read by a wide audience.
Software/services is different; I think a lot of it is due to the free software movement. And most of the rest of it has to do with venture capitalists who are willing to support free.
Jox
on 10 Mar 09What’s happened is that people have figured out that with digital goods or services marginal costs are near zero.
The more popular a good or service is then the closer to zero it’s marginal cost should drop and inversely the higher it’s advertising revenue should be.
Companies that can’t leverage this model by keeping their total costs down will simply fail.
Stephen James
on 10 Mar 09I thought everything was free, because everyone wants to have lots of users “to test on” and not-free slows user growth. I barely know anything about Basecamp or your other products, since I’m not looking for a solution in that area.
I like free minimal service and if it becomes important, I’ll pay.
reader
on 10 Mar 09One very important part of this equation that you are leaving out is that if it’s free for a while it’s being tried out, tested, liked, depended upon. This is important, if you charge right from the start, many people won’t try it, and/ or get hooked on it or become dependent on it which is what you really want. And that’s really what happens with most software, even MS Office, in a slightly round about way, people really got used to it in the workplace and then couldn’t live without it, so then it became software you have to have at home.
I agree with what you are saying, but I don’t agree with your time frame of charging, and no a 30-60 day trial doesn’t work all that well either for getting hooked. It takes time using the software which is always measured in calendar days.
Martin H. Normark
on 10 Mar 09I totally agree with you, fellow Dane. Also, I think your business’ tipping point between healthy and unhealthy is very small when you rely entirely on VC funding.
But with the world we have now, it is actually an advantage if you want to launch a product in a market of free stuff. Because if you charge for it, you can position yourself as a quality product and get customers that actually wants to pay for something, in order to get promises, stability and (great) support.
Kyle
on 10 Mar 09I’m looking forward to taking the plunge by charging a nominal fee for a few extra features in one of my side projects, pat.io – probably won’t amount to much, but it can’t hurt to take a chance. If it pays my hosting bill, I’ll be happy.
Also, the “browser == free but browser != internet” statement @Daniel made earlier is pretty spot on; you wouldn’t think twice about paying for a physical newspaper, but everyone seems to scoff when that same content is online but behind a paywall. Bad example perhaps, but you get the gist.
Lawrence Krubner
on 11 Mar 09“I think if Facebook started charging something like $5/month after a 1-month free trial, in 2009, a lot of people would start paying for it“
Wow. MySpace would love that.
Michael Kimsal
on 11 Mar 09Facebook at $60/year might be a bit much for people, as the FB experience is largely only as good as your network of people. For many, it would be a great bargain. For others, not worth it at all. $19/year might be a much strong price point for FB, if there were no ads. However, then FB is really limiting their income. That would mean ‘only’ 3.5 billion per year, even assuming everyone who’s a current user actually paid (wouldn’t happen).
jonathan
on 11 Mar 09In my opinion not charging is the easy way out. Trying to figure out what your price should be now that is hard. We struggle almost everyday trying to work out a price that will work. I am open to any suggestions on how to price a monthly subscription web application like ours.
Aaron Evans
on 12 Mar 09If you don’t have something of real worth, or aren’t willing to work hard to get your customers, or don’t have the skill to compete head to head in the market, then by all means charge for your software. There are always a few suckers out there to think Y costs more than X so it must be better. Your hobby project will probably net you a few dollars to buy candy after school or if you save it up, some little gizmo that has a light that blinks when you push a button.
Look at who’s talking here - 37 signals exists only because of free stuff. I can count the number of paying users they have on one hand (but only because I have six fingers on my right hand.) All of their money comes from consulting, because they invented two things and gave them away for free - rounded corners, and Rails. It is their reputation from giving away stuff that gets them clients.
Google controls advertising, so if you have viewers, you have value to google. TV existed solely on advertising, and radio, magazines, and newspapers before it. So can the internet. The token subscriptions for print until recently only ever covered shipping. There is no shipping cost on the internet.
If your application is 2 gigabytes, by all means charge a 4 cent download fee. But your competitors are going to laugh at you and pay 4 cents to everyone on the planet (that’s only $24 million) for the advertizing. Free software IS advertising. And it’s better than a flash banner video clip with a wack-a-mole celebrity endorsement for herbal viagra delivered to your front door every morning by a spokesmodel.
Because only people interested in your product will download it for free. And if they like it, they’ll tell all their friends. Or keep it secret and build a business model to monetize what you’re giving away.
But then they’ll probably hire you as a consultant to improve it.
Ben
on 12 Mar 09Google was free for how many years before they started running adsense, and it’s still free for most users. I think the world is a much richer place for having pagerank and google search – nah flag – they shoulda just charged for search from the get go.
Tom
on 12 Mar 09David, I watched your startup school talk last night and really enjoyed it. The timing couldn’t have been better as we’re soon to be launching our own startup and, we’re going to charge money for it! My question to you though is; which free online services do you currently use? and, what would you be happy to pay for using them? Like you said in your talk, it’s easier to charge a business than it is a consumer (people aren’t often spending their own money), so would charging for something like twitter fundamentally change it? Is it the expectation of everything for free that is wrong or the companies giving their products away for free?
Troy Gilbert
on 16 Mar 09I agree with some of the commenters that the tone of this post (as is often the case with David) is arrogant, but hey, that’s his style of delivery and it works for him. Call it confidence, call it arrogance—not my style, but let’s focus on the content.
The big distinction here, as many have pointed out, is B2B vs. B2C. If you’re building a B2B model, free shouldn’t be part of the discussion (unless it’s freemium, which is just a more sophisticated try-before-you-buy model that nabs a bit of the prosumer market). If a business is going to use your product at all it’s going to be to make money (or reduce costs, etc.), so there’s no reason you shouldn’t be charging them.
For consumers, though, it’s a different story. Free is critical. There are a lot of good products that are more valuable than free but that make sense to be free. Take Twitter. If there was any cost it would have failed. Twitter is valuable because there are millions of users using it (much like Google, or Facebook, or MySpace). Twitter’s technology or service are not inherently valuable, they can be reproduced in a weekend of engineering. Twitter’s ecosystem, the fact that its use is becoming ubiquitous, is its value. That was only attainable by being free because in a vacuum (where everything starts) its product/service was not valuable.
With our company, Mockingbird Games, we let consumers use our product for free, but businesses (who want their users to use our product within their contexts) pay.
The distinction that David doesn’t make - but I’m sure he understands and is implicit to this argument - is that someone has to pay for your product/service, flipping the company is a rare path to success (but it does happen!) and shouldn’t be one that most startups build around. But that doesn’t mean you have to charge the user of your product… you should charge whomever benefits from your product being used, which may be other businesses, advertisers, power users, etc.
Vanessa
on 16 Mar 09I’m glad this is being discussed. As a user I think some things should be free like the Web, e-mail etc. I pay for Internet access through a provider, programs, applications, a computer without which the free Internet would be un-accessible for me.
Having said that, only children expect EVERYTHING to be free.
I think the Internet created a world of it’s own. The expectations are far different than those we were accustomed to before it was created and will now have to sleep in that bed—and re-learn.
I would never walk into a brick and mortar business expecting free products to line the aisles. Absurd. A sample here and there sure.
Where a model like Twitter is concerned, they can’t keep paying the bill themselves. Cell phone companies (for example) should find a way to pick up the bill. Twitter took these companies to another level in the market place.
It is users who they will have to contend with because of course, they hate ads. Again we are dealing with the absurd.
Newspapers are a prime example. They depended on advertising for centuries to pay the bills. Why not? Consumers buy products and services.
Now there is talk about the newspaper industries’s salvation maybe being non-profit. Imagine reporters doing fundraisers to get paid.
What few will admit is the Internet is responsible and will continue to be responsible for millions of businesses going out of business around the world, like when Walmart moves in and other businesses go under. Obvious right?
Anyway, I’m glad to see this conversation on the grid. I agree a business should not make the news because they charge for a product. Absurd, just keeps describing the scenario.
Nikkies
on 16 Mar 09Then Google begins creating and purchasing addon products – like Docs and YouTube – and applying them out for free also, subsidized along their explore ad billions. That makes a lot of smaller / younger companies think they either can emulate that winner with free (afterward all, selling stuff didn’t work out so good for so many), or that they motive to compete on price to compete at all—which means free. Breckenridge real estate
This discussion is closed.