Free – By Itself – Doesn’t Work, Says Chris Anderson
by Anita Campbell
Chris Anderson, the author of Long Tail and Editor of Wired magazine, writes in today’s Wall Street Journal that in our new economic reality, offering a Web app for free is not a standalone business model. He writes:
What about those companies trying to build a business on the Web? In the old days (that would be until September of last year) the model was pretty simple. 1. Have a great idea. 2. Raise money to bring it to market, ideally free to reach the largest possible market. 3. If it proves popular, raise more money to scale it up. 4. Repeat until you’re bought by a bigger company.
Now steps 2 through 4 are no longer available. So Web startups are having to do the unthinkable: come up with a business model that brings in real money while they’re still young.
Actually, that was never a business model for a Web or software business itself. The underlying Web application, if it was completely free and unsustainable by advertising revenue, never had a business model.
Sure, there was a business model — of entrepreneurs “flipping” startups. They were never in the software business, they were in the business of incubating companies and turning them over quickly. Comparing them to a software business is like comparing a house flipper to a landlord. One is in it for the short term, looking ahead to the exit. The other is in it longer term and expects the property to pay its way. Two totally different things.
But as Anderson points out, just like after the Dot Com bust of the early part of this century, the current downturn forces us all to reflect once again on the realities of business. Not only is “free” unsustainable as a standalone business model for entrepreneurs, but I would add that free is also risky for end users.
Is there a role for “free”? Certainly — as a marketing strategy that supports your business model:
- Use free as a limited time promotion.
- Use free for an entry level product to develop demand for premium products with a price tag.
- Use free to sell something else with a price tag (the old “give away the razor to get them to buy razor blades” strategy).
- Use free as a strategy to get at startups and young people, to encourage them to “grow into” a habit of customer loyalty.
- Use free as a strategy to sell high-margin add-on services.
But whatever you do, don’t expect “free” to be the end goal for a software application. That’s crazy.
More at Paid Content and Techmeme.
Thought...
