Worried about Free or Beta?

Mar 31, 2008 by

There was a good segment on NPR’s Talk of the Nation entitled “Who Pays for Our Online Lives?” – the segment features Chris Anderson (editor of Wired Magazine), Kevin Rose (founder of Digg), and Brad Feld (venture capitalist). Chris (who wrote the book The Long Tail) is writing a new book called, Free, about how businesses make money by giving away their products for free.

Often I get emails or see questions on various ListServs with concerns about using “free” or “beta” software in educational settings. The question is usually: What if they start to charge money for it? I think the real concern is what if the terms of the useage change in the middle of a semester – note to any software company reading this … if you don’t want to piss off a whole bunch of users from education, change the terms of your use during the first two weeks of August – I would consider this about the only “safe” time for the majority of educators.

OR

Announce that there will be a change months before the change is going to happen – this would give us sufficient time to plan, make budget requests, notify the campus bookstore, etc.

My standard response to the “What if it starts to cost money?” question is that I’d rather have the ability to try out a full version of a piece of software for as long as it’s available before having to make any kind of decision about whether my institution should purchase it. However, in many cases, I really don’t think we have to worry.

I use lots of free software and sites: Jing, Mindomo, WizIQ, Yugma, Zoomerang, Gmail, and others.

Take Jing, for example, … yes, it’s in Beta right now, and it’s free. Chances are that it will always be free for use up to a certain point, and then cost money after that point. Here are two options:

Option #1: It will remain free for students and educators, and cost money for businesses.
Option #2: It will remain free for up to 200MB of storage space, and then cost money after that.

Both of these would be sound business models for Internet-based ventures. These ventures (as explained in the NPR segment by experts far more knowledgable than little old me) make their money on less than 1% of the users of the software – the “power-users.” It is so cheap to allow low-level users, that the cost is essentially zero – simply not worth the cost of setting up accounts, tracking credit card transactions, etc. The advertising you get from the word of mouth of those free users is worth more than the insignificant amount of money it takes to allow them to use your product.

Let me give you a specific example of how you become part of that 1% of people who are paying for the other 99%. For most of you, the seven-map limit on Mindomo will comfortably serve your needs. But I’m on my sixth map and seeing how I might want to pay the subscription to use the software past seven maps. So I will probably become a “power user” and fork over a subscription fee. To me, the ability to have more than seven maps has become something worth paying for.

What I find particularly interesting, is that many academics are embracing the use of open-source textbooks and learning materials, like Paul’s Online Math Notes (a great site) – and might be teaching a course without a textbook. But Paul could decide tomorrow that he wants to begin charging for his materials and put a password protection on the site – and yet, we assume that because Paul is an individual in academia that he won’t. Why is that? Plenty of academics write textbooks and get royalties on those … Paul could sell out to a publishing company tomorrow and then we’d all have to alter our courses to include different open source materials. I’m guessing that’s not his intention, but it is certainly within the realm of possibilities.

Well, the same goes for software. If Google decided to start charging $10 a month for gmail, I guess I’d have to pay it (and I wouldn’t like them very much anymore). Probably, I should be paying something to Google because I use so many of their products and never click on any of their ads. But more likely, another young upstart Internet company would launch something very similar, available for free, called “Qmail” and I’d migrate to that.

On the Internet, if you don’t give it away for free, nobody will use it. The business model for Internet software is 99% free, 1% paid. If you’re going to make more money, you look at 98% free, 2% paid – not 100% paid. If you’re planning an Internet venture, and “free” is not part of your business model, then I don’t think you can be successful, but maybe I’m wrong. Has anyone seen an example of a successful, growing Internet software company or website that doesn’t give away something for free? I’m curious.

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2 Comments

  1. Rose Jenkins

    I listened to some of this last Wednesday. It was very good. I was just thinking today about having my online orientation in WizIQ and hoping that it would still be there when the time comes. The about us information has an air of “this could come with a fee eventually”. I agree that early August would be a safe time to change.

  2. /Slash

    I found this video about Yugma’s vision. It’s actually pretty cool.

    see http://www.youtube.com/watch?v=pe9qU3H3LJk

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