SmoothSpan Blog

For Executives, Entrepreneurs, and other Digerati who need to know about SaaS and Web 2.0.

Does Free Really Have Value?

Posted by Bob Warfield on February 28, 2008

Giving things away on the Internet for free and figuring out how to make money later has been a time-honored tradition.  The wisdom of it is chiseled in granite, and those who would dispute it are the heretics of our day.  Yet, I am vaguely uncomfortable with it’s efficacy.

Seth Godin wrote another of his 600 (his number) posts about the goodness of free.  He equates free to being a way to pay for someone’s attention, because they sure won’t give it to you for free in this day and age:

If you want someone’s attention, I’m afraid you’re going to have to earn it. To pay for it. To do something that makes the person who just gave you this attention feel like a fair bargain was struck.

If I give you my attention, I want to get something of value for it.  But is “free” still a value when almost everything is free?  I’m concerned that free has become undifferentiated and that it now has a lot less value than we think.  It is the last refuge when you’ve no idea whether you have a good idea or can sell it, so you loudly proclaim it’s free and wait for the huddled masses to assemble at your doorstep.  Except, it’s not enough any more.  They may check in, but free doesn’t get it by itself.  Whatever you are offering, the world has come to equate the value of free less and less.  The ultimate example is the music industry.  The digital age made the cost to manufacture music via copying free.  Hence many began to feel that it wasn’t really stealing.  How can taking something that’s free be stealing, after all?  Free didn’t work there.  Now, many will be quick to argue that the media people created their own problem by not embracing free, and that’s true.  But it’s hard to escape the idea that free also reduced the perception of value too.

Dharmesh Shah’s article on Why Startups Fail struck me as a strangely syncopated variation on this melody.  He argues that it is through lack of capital or commitment.  That seems to me a strange cart before the horse juxtaposition.  Don’t they fail for having poor execution or a bad idea?  Yet Shah seems to feel that with enough capital and or commitment, the startups can keep on trying until they get the right idea or execution starts working.  In a sense, if capital was free and commitment easy, everyone could succeed with a startup.  Except, I don’t believe that.  Do you?  Aren’t there some who would never get there no matter how long they tried? 

In the end, we must not lose sight that most people are relative thinkers.  Free relative to $500 is valuable, but not because its free, but because it saves us $500.  If everything is free, where is the relative to compare it to and derive value?  Free is most valuable when its early.  If you’re the fourth or fifth free offering in a space, think hard about what you get for that.  Even if you’re the first, free may be a long haul.  Take MySQL.  The Sun acquisition was ultimately a nice conclusion, but they struggled long to get there, and ultimately only got to $60M a year.  One in ten thousand customers were paying them anything.  Is that really what you want to get from the power of free?

Fred Wilson likes writing about Free.  Free is a great way to make moneyIn Defense of Free.  The latter has the most telling quote right up front, from Stewart Brand:  Information wants to be free.  We’re back to the digital music thing again.  Because it costs nothing to produce, it ought to be free.  We want it to be free, and we feel we’re being taken advantage of if it’s not free.  Outrage leads to taking liberties.  Is this a good basis to build a business on?  Sometimes, but it feels like starting out from a position of disadvantage.

How is your company using free?  Is it an appology, because information wants to be free and it costs you little or nothing to deliver your product?  Is it paying the user for their attention?  I find I like Seth Godin’s payment for attention approach much better.  I want to pay the user, not acquiesce to their view of my value.  That feels like starting out from a position of strength.

The other great quote from Fred’s In Defense of Free is, “that a paid model can actually be beneficial, is really interesting and needs to be better understood.”  This goes back to the observation that people are relative thinkers.  Relativity can be directionless.  When everyone is charging, go free.  Did you get value because you’re free, or because you are different than the rest, and therefore interesting?  It’s both.  So if everyone is free, consider charging.  It will make you different.  It will enable you to increase your differences too.

I like what I call the “Near SaaS” model.  It isn’t free, but it isn’t at SaaS prices either.  One of the best examples I know is SmugMug.  Their proposition is simple and credible:

We’re going to charge you a little bit, because it allows us to offer you a better service.  Since you want the best, that’ll be okay and we both win.

SmugMug is much more profitable.  They provide the better service.  And they’re different.  Being different is extremely valuable.  When you consider it, the web brings two things.  It’s much easier to make things free and its much easier to have a lot of choices.  Being different is how you succeed when there are too many choices.

Free may not always be the best answer.  Think about being different.

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3 Responses to “Does Free Really Have Value?”

  1. Freebies can increase traffic, but free things have no value. No value does not motivate any constant interest. All in all, freebies end up in garbage bins and interest vanishes away.

  2. dharmeshs said

    Bob,

    Great article. I’d argue that there really is no such thing as free — just subsidized. If something is free, it’s likely that the motivation is what Seth was talking about — to garner attention and goodwill.

    By the way, I had not intended to suggest that startups fail *because* of lack of cash (as you noted, it’s usually because of poor execution or a mediocre idea). My point was that startup “failure”, in the absolute sense of the word, is really a function of running out of time. Ideas can fail, teams can fail to execute, etc. — but a startup fails because it runs out of time and can’t keep trying.

    In any case, I like your arguments better (my argument was a bit strained and not well supported). If nothing else, at least I hopefully contributed minimally to sparking your article, in which case, it was worth the effort.

    Regards,
    Dharmesh

  3. [...] Smooth Span (mandatory reading if you’re into cloud computing and SASS!) ‘Does Free Really Have Value’, http://smoothspan.wordpress.com/2008/02/28/does-free-real… [...]

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