Better Than Free

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Google may still be offering its employees a free lunch, but for many companies free isn’t the way to make money. Blogger Allen Stern writes this morning that “most startups give away so much for free that users have no reason to upgrade.” Many people on the Internet have begun to feel entitled to free stuff: free music, free movies, free software, free information, etc. But free is potentially taking us down a dangerous path.

Michael Galpert, one of the founder of online image editing tool suite Aviary, has a great post up on the company’s blog today about getting people to pay in a world dominated by free. Galpert lays out a list of 5 things he thinks that people are still willing to pay for. These concepts can be applied to almost any product or service:

  1. Convenience – People are lazy, says Galpert, which is why they’ll still pay for music tracks on iTunes, rather than get it from a P2P network. If you can offer them convenience over free alternatives, they’ll pay for it.
  2. Quality – Access to higher quality content, products, support, or community features is something that people are willing to pay for. If a subscription fee keeps spammers out of a forum and makes it more attractive to industry professionals, then people will be willing to pony up the dough, for example.
  3. Additional Functionality – Galpert cites 37signals, who have pioneered the “freemium” model on the web by giving away a free appetizer, but charging for the full meal. The danger, as Allen Stern points out, is knowing how much to give out so that your pay product is still an attractive upgrade for enough users.
  4. Customization – Customization is a great value-added feature for many products, and people are willing to pay for it. Galpert uses WordPress.com as an example. The site offers free blogs for anyone, but to customize the CSS or use your own domain name you have to fork over some cash.
  5. Privacy – While privacy should be built into any service at any pay level, additional layers of privacy are something that people will pay for. Galpert talks about GoDaddy, which offers a premium service that allows people to mask their information on WHOIS searches.

Galpert’s list is helpful for anyone offering a web product or service that has to compete with free offerings. Competing with free is difficult, but as the example above show, it is not impossible.

What would you pay for? We’re interested to know. Give us your thoughts in the comments.

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  • http://www.dangrossman.info Dan Grossman

    Convenience is the #1 reason I pay for things I could get for free with some more work.

    I’m looking at buying a new PC right now. I’ve always built my own PCs in the past, but I just don’t feel like going through the hassle this time… I’ll pay more, but I think I’m going to buy an off-the-shelf computer this time.

  • colorbycolor

    Great article-thank you for laying it out. This list makes absolute sense as I’m sure we’ve all paid for a product or service based on these very same reasons.

  • Allen

    Thanks Josh for the link! I think Michael’s post is spot on.

  • littlejim84

    Good post. Good points… Definitely something to consider, when I’m designing my next web app. Thanks!

  • http://lukep.net lukemeister

    Another thing to consider is that free stuff on the web might not necessarily be supported very well.. I’ve used a few web applications because they were free, but getting bugs fixed or looking forward to upgrades really was non-existant.

    Offering good support and upgrades for payed products makes them more worthwhile too.

  • Tim

    I agree with lukemeister. Corporates will often purchase the supported version of a free tool (ala MySQL Enterprise with certified binaries). Basically boils down to purchasing peace of mind.

  • roosevelt

    An awesome piece of work :-)

  • John

    Interesting topic and great timing.

    Ive just launched a share accommodation website and was initially charging $15 for basic ads and $20 for premium ads with photos. 2 weeks in from launch and I have received email after email from people “whinging” that the service should be free. Infact Im so tired of this it makes me wonder where we are headed, or infact if there is any profits to be made online in this type of marketplace at all.

    Ive been running online businesses now for 4 years, and it seems that many sites, infact a lot of the big ones too, are moving towards this FREE business model. But seriously, at the end of the day A BUSINESS IS A BUSINESS and needs to be PROFITABLE in order to succeed/survive.

    I have a number of direct competitors that offer free share ads and while this may be great for web visitors, where or what is the point in it for the owners if theres no money in it?

    Im sure there are other ways (advertising etc) to create revenue, but not all of us want to fill our sites with popups and flashy banner ads.

    I think perception plays a big part in the overall issue as well. A lot of end users dont understand the amount of time/effort/money that is invested into an online business at all!

  • Gallifm

    Free could actually be bad for internet users.

    The only companies who can afford to offer high-quality, mass market web services are the likes of Google, Yahoo and Microsoft who can cross subsidize them from other areas of their business. By definition a small business with no income from their free offering will fail. Big companies will dominate and eventually use their monopoly positions to start charging by which time there will be no alternatives.

    By the way their are a few other things people will pay for:

    1) Exclusivity – e.g. many free forums and niche content websites have a paid member area. People pay to be part of the exclusive membership group

    2) Ad-free – e.g. many free website build services place their own ads on the free sites. Customers can pay to have an ad-free site.

    3) Speed – e.g share price services give delayed data for free or real-time data for a fee

  • dippingtoe

    One thing I find curious is the notion that everything can be subsidised by advertising – but what is advertising? It’s someone telling you about their product, that they want you to BUY.

    However when a site has hundreds, thousands or even millions of visitors, all of whome expect and demand “free”, WHAT THE HECK IS THE POINT OF ADVERTISING TO THEM!!?

    With rising fuel prices buying physical products from across the state or country is uneconomical, even more so internationally. So if I advertise on your site, your only value to me is how many LOCAL (to me or my business) visitors do you get?

    Now your “thousands and thousands” of visitors turns into something like “4 a month” or so, and suddenly advertising on your site has zero value to me.

    Right now we have a curious situation whereby there are flocks of visitors to ‘free’ places, supported by advertisers for digital products or services – but kill off all value in digital and advertsing on the internet gets very local very quickly. In short, this situation cannot last.

    Take sitepoint itself – it ships no products, it’s digital, selling digital services, ie facilitating digital trade between digital sellers and buyers. Already on Sitepoint we see people selling complete websites, not established, just “site in a box” sites, going beyond raw scripts.

    Ultimately someone, somewhere, has to pay for all this. If the day comes where we really do consider anything digital to be “free”, then quite literally all this will cease to be.

    D

  • Scorpiono

    I have to agree with Gallifm – they would pay for Exclusivity more than anything else if you create the correct wibe.

    I have always chosen the FREE business model and the only source of income I could see is Advertising and creating exposure for pay-business models. I’m not sure how good it worked out for them, but they kept repurchasing.

  • dippingtoe

    and they’ll continue to repurchase as long as they get a positive return on their investment – but that’s dropping as more and more people think “it’s internet so it’s free”.

    Already the banner style of advert is not dead or dying but seriously devalued over what it used to be. Used to be a time you could charge hundreds of dollars a day for a large banner – today you’re lucky to get $0.01 per 1000 impressions and personally I don’t buy advertising on any site with less than 100,000 visitors a month. I just don’t find them economical any more.

    People see but don’t actually look at banners. They’re everywhere but invisible and even the “I’m a text link rather than an advert, really I am” Google stuff is getting ignored now.

    Bottom line, if people are not *buying* on the internet there are very few things worth *advertising* on the internet. That’s the direction we’re heading in so the article does make some strong points.

    During the .com boom many sites flourished by giving visitors “free” while selling adverts of yet more sites giving visitors “free”, who in turn sold advertising to other companies trying to give visitors more “free”….

    Who was actually buying anything? Very few, so it all crashed.

    Now we seem to be repeating history yet again. “It’s free but we’ll sell advertising..” Yeah but to whom? Someone else who wants to sell advertising? We cannot make money just selling adverts to each other – sooner or later, we need customers actually BUYING something.

    We’re not just killing the Golden Goose, we’re kicking the corpse around and yelling “victory!”

    *sigh*

    D.

  • Scorpiono

    Good point on the selling advertising to sites that do the same, it’s going nowhere.

    I’ve started selling flat advertising how I call it – after Google banned my account, competition webmaster uploaded pornographic content on my social network and reported to google, it wasn’t much to do, all happend in a matter of minutes based on stats. I appealed but they didn’t care that much.

    Selling advertising was quite okay, $15-20/banner per mth on a 2000-2500 uniques/day website. Still, you need to get quite good branded or have alot of traffic as you mentioned.

    Not sure what’s there to do, except major players like Google Adsense die (as in disappear). I pray!

  • John

    Id really like to see/hear some more thoughts on this topic – in particular from those running websites.

    Im finding this article quite interesting and insightful.

  • Razorededge

    Open source business’ make the most money at point of sale.

    /thread

  • Eric Ferraiuolo

    One point to be made here is the distinction between web sites and web apps. No web site can meet any one of the criteria listed in the this article; those items can only be met by web applications.