'Free' can disrupt your business

Web economy has led to the creation of many types of free services.

The other day the Encyclopedia Britannica announced that it would now be free for Web publishers -- bloggers, webmasters, or writers. You could pay US$1400 for the 32-volume printed set of books, or you could pay for the online service, but the fact is that competition is pretty stiff when you can get much of the same information for free from Wikipedia.

"Free" is disruptive. It can create value. User generated content, in the form of videos provided for free by users to YouTube, created a valuation of $1.65 billion when they were purchased by Google. Or it can destroy value. The easy availability of free music, though not always legal, has decimated the music business.

We have become a knowledge-based society. The flow of information -- the bits as opposed to the atoms -- is virtually frictionless. It costs money to copy a CD, but the digital information can be replicated infinitely at no cost other than bandwidth. That economy has led to the creation of many types of free services.

There are tiered service models, also referred to as "freemium" services. Yahoo! offers Mail for free, or Mail Plus with additional features and capacity for $19.99 per year.

Trial services, such as Adobe's Creative Suite 3 provide a time-limited free trial, after which you must purchase the software to continue using it. This works well because Adobe provides a very specialized and unique set of tools; it might not work as well for more generic software.

Ad supported services, such as The Industry Standard that you are currently reading, rely on advertising to pay the bills. This is the business model that Google uses as well.

Open source software depends on the contribution and altruism of the software development community to create and enhance software so that it can be provided for free.

And there are also products that are free, and in search of a business model. Products such as Twitter fall into this category; they are essentially "because we can" products.

Many companies find that though the give away the software, they are able to generate revenue by selling service and support. This is because while many companies like the concept of free software, they still need to be able to call someone for support.

As the internet has grown we've become accustomed to an increasing number of free services, and free ways of getting information. This has made it difficult to convince users to pay for services, unless they provide a clear value proposition such as Adobe's products. But even then, Adobe has achieved that dominance by providing tools such as Acrobat and Flash Player for free. By getting people hooked on the viewers, they created a market for the tools. Microsoft has been able to do this with Office as well, though there are excellent services such as Google Apps available now at no charge. Most web-based services have been forced to rely on the ad-supported model, unable to differentiate themselves enough to convince users to pay.

So if the venerable Encyclopedia Britannica is forced to give their information away, what does that say for the future of the typical software company, especially when their competitors are giving the software away as well?

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Larry Borsato

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