make it free or fail.

January 2, 2011

Follow me on Twitter, if you like. Or follow my latest project, TapType.

A kind of unspoken law has established itself in the software developer community in recent years: make it free or fail. From iPhone Apps to Windows Programs to Webapps, just about every developer has bowed to the silent pressure placed upon them to release their work for free. It has become almost a self-fulfilling prophecy: developers are led to believe the only way to succeed is through making everything free, and consequently, that’s exactly what happens. The freemium business model has become commonplace, and the consumer is enjoying a period in which they can find just about any software they need without paying a cent.

The idea behind the freemium model is great: let everyone use the service or app for free, hope it goes viral, and consequently spend far less on marketing, instead putting it into building a fantastic product. And for a few businesses, this works. The entire freemium software boom, in my opinion, stems from just a few successful companies who utilized that model: Evernote, Dropbox, Pandora, Automattic, Zynga, and Skype. Perhaps even Facebook and Twitter. The idea of behind the all too frequently heard line: ‘we’ll get millions of users first, and then worry about revenue’ stems from these businesses. The problem is, just about every startup is following this mantra,  and that’s exactly the reason why a lot of them fail.

A lot of people in the industry, angel investors in particular, love to broadcast the idea that ‘you can either get 1 million users, and have 1 percent of them pay, or struggle to find 10000 paying users right off the bat’. The thing is, in the overcrowded app and webapp space, it has become harder and harder to find those million users in order to break-even – and that is what a lot of startups are relying on. The freemium model has almost turned in on itself due to its own success: Producing a self-marketing, viral product has become, and will continue to be, increasingly difficult as the market becomes over-saturated with startups all attempting to do the same thing. Consequently, startups will be forced to pay for marketing to gain the upper hand: the freemium model will crumble as there is a requirement to release the product for free, and pay for marketing. That situation is impossible to sustain.

When releasing a product for free, just about every developer simply assumes that consumers will be willing to pay for it in some way, they assume that there will be a reliable revenue stream in the next year, or two years. Conversely, quite often there isn’t, and startups go bust. If a product is released on a pay-only basis, you know in the first month if the product will succeed, rather than two years and thousands of dollars down the road. Having a revenue stream from the get-go validates your product, it confirms that users are willing to pay for the app or service and ensures a reliable revenue stream in the future. Money, in my opinion, is the only reliable way to measure the worth of your product. Pageviews, downloads or referrals mean nothing in terms of long-term profitability. Releasing a product only to paying users also provides great feedback, simply because users who have paid for the product care a lot more about its improvement: they want their money’s worth.

Is it not better to forget about the millions of users, forget the billion dollar exit and instead focus on building a fantastic product, charging for it, and offering great support?

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15 Responses to “make it free or fail.”

  1. I hate to be pedantic, but I think it’s a mistake to use the term “free software movement” here, when what you’re really referring to is “the freemium business model movement.” Free Software has a very specific meaning that is only tangentially related to the point you’re making.

    http://en.wikipedia.org/wiki/Free_software

    • Alan said

      Hi Philip Rhodes,

      Thank you for the clairification. I myself a newbie free software enthusiast was confused over the meaning of the terms ‘free software’

      Thank you for the clarification.

      • Thomas Paine said

        Actually free software is software that doesn’t cost
        anything, so your usage is the correct one, it is Mr. Rhodes that
        is very confused. This is because a smelly semi homeless welfare
        recipient named Richard Stallman wrote an article claiming that
        software that comes with outrageous virally infective licensing
        terms that restrict your freedom to work with the code would be
        called “free software”, as a sort of Orwellian double-speak. Since
        then, cult members who follow Mr. Stallman have been posting
        bizarre cryptic and nonsensical messages such as the one Mr. Rhodes
        did.

  2. […] : Continue reading the article : […]

  3. hasen said

    The problem with “saturation” is not because things are free. It’s only a problem when your product doesn’t solve any problem. If your product does solve a real problem, and solves really well, you’ll get the users.

    If you just make something cool that doesn’t really do anything people need, well then, don’t blame it on market saturation.

    • Jay Pipes said

      This is exactly right.

      Build a product that people will use, and that solves a problem for them, and you don’t have to worry about traction. If you’re the *first* to do it, then you have a better opportunity to monetize your popular product than the (inevitable) copycats that will come afterwards. Those people that recognize the opportunity when it arises will do well. Those that don’t will join the rest of the Internet/app noise-space.

  4. pcorcoran said

    “All my bills are paid if 1% of the world’s population will pay me 1 cent per year.”

    The mega-population-times-micro-payment business plan is new to our times, probably first seen only 15 years ago, or thereabouts. I think it’s a new business state, and one we don’t understand very well yet. We’ve seen success with it, and we’ve also grown tired of the probabilistic imbalance of startups hoping to succeed by it.

    I think this business model is analogous to a gaseous state. If IBM and big-tech B2B of the 70’s is a solid, and if Microsoft and Apple and Amazon are liquids, then hereupon I propose that “global hopeware” is analogous to gas.

    You don’t know your customers, you don’t have the corporate relationships in place to track your customers, because in fact your customers are as interchangeable as molecules and your business model can’t actually support the exceptional treatment of some customers as worthy of an expensive human-to-human relationship.

    Not a value judgement, just a few thoughts….

  5. […] make it free or fail. (via Kane Bennett) Leave a Comment Posted by Shafiq Issani on January 2, 2011 Follow me on Twitter, if you like. Or follow my latest project, TapType.   A kind of unspoken law has established itself in the software developer community in recent years: make it free or fail. From iPhone Apps to Windows Programs to Webapps, just about every developer has bowed to the silent pressure placed upon them to release their work for free. It has become almost a self-fulfilling prophecy: developers are led to believe the only way … Read More […]

  6. gauri said

    its ironic that the related posts suggestion is…


    20 essential free apps for your new Windows 7 PC
    Top 10 free apps you might not have heard of”

    ..all written by you!

  7. @gauri: The related posts aren’t written by me, they are posts from other authors created by WordPress.

  8. Dan said

    I think you might have misunderstood ‘freemium’ slightly – a freemium model is one where the basic service is free, but the more functional option is chargeable. Dropbox is a good example – you get 2-3GB for free, but if you want more you have to pay. Twitter is not following a freemium model, it’s just free. Likewise Facebook – although they have made money off virtual gifts (do they still do that?) so I suppose you could call that a very poorly executed freemium (the ‘additional functionality’ is a frivolous, one-time thing rather than something you use regularly). It’s not about ad revenue, or harvesting your data to sell to third parties (c.f. Twitter’s ‘Firehose’).

    It’s not my experience that successful freemium sites ‘simply assume that consumers will be willing to pay for it in some way’, but rather build a system where they give away a portion of it and charge for good bits that some people really want. An example that I pay for is pinboard (http://pinboard.in) – it’s a bookmarking site like delicious, and for a nominal annual fee it will cache copies of the pages that you bookmark in case the websites get taken down. Also Unfuddle (http://unfuddle.com) – free accounts for a single small project (2 users), charged accounts for anything larger.

    ‘Free’ is very appealing to the human psyche (see http://danariely.com/2009/08/10/the-nuances-of-the-free-experiment/) and helps to do your marketing for you – it doesn’t preclude making a great product but rather encourages it, especially if you’re following the freemium model. After all, if your product isn’t good enough then no-one will pay for it and you’ll be stuck with thousands or millions of subscribers and no income.

  9. Adormo said

    In our experience and market (apartments reservations web site builder) giving away for free is perceived as low value.
    Once you give it a price, this is what’s worth to the customers.
    After all it just makes sense that we who made the product, try to price it fairly, right?
    We just launched and sales are going very well.
    Better 100 paying customers than 1.000.000 potential ones.
    Of course there is no perfect solution for everyone, but this model makes sense for us.

  10. […] make it free or fail. Follow me on Twitter, if you like. Or follow my latest project, TapType. […]

  11. […] recently blogged about my opinions regarding free software vs paid software in a post titled ‘make it free or fail‘. To summarize it, I basically disagree with the common idea that the only way to succeed in […]

  12. […] the next couple of weeks I will be running a real-world test to determine a conclusion to my ‘make it free or fail’ post. I will be using my latest project, TapType, as a kind of test dummy. TapType is an […]

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