37signals' Fried: 'Free is not the future' of apps
MIAMI--Jason Fried of 37signals kicked off the Future of Web Apps conference here with a bang earlier Tuesday.
37signals is known for making project management and collaboration software for the Web. It also features a pricing model for its products, which is somewhat unique for a provider of Web applications.
Jason told the crowd here today that "free is not the future of business." He stressed to the Web app developers and entrepreneurs in attendance that they need to start charging for their applications and that free is not the way to go.
Fried went on to say that it is rare that a company can sustain itself on a free-based strategy and that a pay-based competitor will be able to outlast them.
Especially in these tougher economic times, companies need to make money. Charging for applications is a great way to do it. That's not to say that charging is for everyone, but when applicable, people will pay for a high-quality product like 37signals' Basecamp.
Fried also discussed releasing the byproducts of one's work, as his company has done with Ruby on Rails, which came about as a result of the development of Basecamp.
What do you think? Is free the "future of failure," as Fried suggests, or is it here to stay?
Harrison Hoffman is a tech enthusiast and co-founder of LiveSide.net, a blog about Windows Live. He is a member of the CNET Blog Network, and is not an employee of CNET. Disclosure. 
Red Hat seems to be making a very healthy profit from RHEL, in spite of the existence of CentOS. Care to explain why?
Because Red Hat charges a yearly fee for support and updates. Many businesses prefer to have a "safety net" for the o.s. that they deploy on critical servers.
* 1908: powered flight was considered too clunky and inefficient when compared with the more graceful and fuel-conscious zeppelins, and 'aeroplanes' were considered to be nothing more than a passing fad.
* 1919: War was considered to be obsolete after the League of Nations formed.
Man - if only I had a penny for each 'professional' observation and prediction made in sheer blindness...
/P
1980s - soviet people joked: "grocery store of future communism times. An announcement on the door: there is no demand for milk today".
Richard Buchner, Hyde Park Systems, Chicago
If nothing else, this gentleman is stipulating that Google is a failed business model. With very few exceptions, Google gives away the products that it creates (although they do tend to hold thier source code close to the chest), and generates revenue by selling access to consumers, and the information gathered about those consumers. Google taught us the key to successful free-marketing: monetize your product without selling it.
With that said, it?s not for every company and most definitely not for every product. If only 100 people in the world need your product and it takes 100,000 hours to make it, giving it away would make little sense more often than not. However, that doesn?t mean it can?t be monetized. Support, upgrades, custom development and installations and data mining are all methods to monetize a product in that environment. Giving the software away for free may actually generate more ?sales opportunities? than a simple sticker price.
In a world where most needs are already met by a ?corporate competitor?, free-ware provides an entry point in to crowded marketplace. Literally, how can you be more price competitive than free? Besides, when you talk about millions (or even billions) of consumers, market share is a valuable commodity. Consider Microsoft, which from the inception of personal computing, held a virtual monopoly on the operating system. For years, the Mac OS was it?s only viable competitor and MS gained a stranglehold on the software market as developers created code (often exclusively) to run in the Windows environment.
Today, Microsoft is madly scrambling to hire a VP of Open Source so they can begin to defend against the consistent erosion of market share. An erosion which recently started to include OEMs providing a linux distro with new systems, rather than passing on the dreaded ?Microsoft Tax?. While many that participate in the open source world don?t make money, there are enough out there that prove it?s a viable method of marketing. One that gets better each year as more and more users make the switch, further expanding the available pool of customers to profit from.
To say that ?free? isn?t viable is short sighted, and frankly a bit silly. However, the classical model is much more likely to yield revenues you can plan (and BANK) on. Calling the ?free? model dead, is an invitation to lose out to a competitor who doesn?t rule out available options because they?re harder.
As Qaballa and rapier 1 highlight, Google is a 'networked business' where on one side they build a vast audience with a great product that they offer for free and on the other side they charge advertisers trying to reach those people while they are searching. Pretty simple but it took them some luck and brains to figure it out! LinkedIn, Facebook, & Twitter are other examples of 'networked businesses' that are in various stages of figuring out their business models. Had they all followed Fried's advice they'd certainly be forgotten.
The danger is there will be a mad rush to the other side of the 'monetization ship' and within a month or two every web app will have a 'see plans and pricing' button (amazingly similar to 37 Signal's I'm sure)... and 12 months later web entrepreneurs will be bemoaning their lack of audience and puzzled with their $5k/month check (500 people paying you $10/month).
Kudos to Jason on a great talk but let's hope entrepreneurs think through their options a bit before blindly accepting his word as truth.
If a package like google docs was available for download and install on a linux server running mysql I would be running it on that little box. I would keep documents on it that didn't require high security, and if it integrated with Drupal all the better.
In the interim I use Google Docs. I think that like the commercialized download software business a paid "software as service" is vulnerable to the software that runs server side being made open source under the AGPL. I personally hope it does.
There will still be a market for the software as a service charge model if the people charging offer a highly secured environment. Something I could not provide for myself. While may large businesses would be able to provide that for themselves there would be plenty of small businesses that would be better off paying someone else to secure their cloud applications.
The cloud is a new market, and I don't think anyone really knows how it will look in 5 years. As with most things in the computer industry it will depend more on what is developed than what customers ask for in the early stages. Once maturity is hit customers will be able to demand more. That is how almost all software has developed so far.
Also, if a company can make money out of free, then they will undercut their paid for services competitors. Google gives their stuff away for free and they make billions.
Anyway, I also think applications are declining in importance in comparison to the rise of web apps or web services.
free stuff makes the stuff you sell more valuable. this is why a lot of mobile carriers give away phones. the free phones create demand for paid service.
a digital good of any kind is infinitely redistributable, so giving that digital product away to add value to your non-infinitely reproducible goods is a model that has worked for a growing number of businesses.
free is working for small ventures like webcomics (penny arcade and pvp are two great examples) to large ventures like sun microsystems, who gives away software to add value to it's hardware and services business.
You guys understand that?? no damn way! People will always code on their spare time and enhance the GNU project, and give it away for free.
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How can a company compete with millions of developers working for free and delivering software for free ???
Answer : the corporates can fight all they want, they are eventually doomed to fail.
That article is a non-sense. Anybody could figure out that simple fact.
Maybe you are right though, this article is a bit of non-sense. Open source is great, it works, it's often better... and business people also make money from it. Win-win situation?
Outside of this, I was under the impression that open source software was meant to allow great software to be built so that the service/creative drive behind the product was the business selling point, the real value...
The reason is that at some point, someone has to be making money to pay for the food that the developer eats and the computer he uses while he writes open-source code.
If his employer is not making money, it will go bust. He will not find employment because no other software company can afford to pay him, because they're electricity costs aren't covered by their free products.
Today, companies that charge and have positive cashflow are supplementing the free/communist economy. It is these companies that put food on the programmer's table. The only alternative is that all programmers find work in a company that generates money from something other than intellectual property.
However, this only works for software code in isolation. Applications that require hosting or are dependant upon centralised infrastructure will consume raw materials such as the metals in the servers and those that are burned to make electricity.
Decentralisation (peer-to-peer) could be explored as an alternative, although one must understand that the resources consumed by all the peers is again paid for with money earned from the user's salaried job.
Hosting a communist micro economy inside an all-pervasive capitalist world can only go so far because it haemorrhages money at the edges where it interfaces with the capitalist economy.
Everything would have to work on a labour-swapping currency before all expenses can be cancelled out.
- by brettowens March 1, 2009 9:59 AM PST
- I agree that the free strategy will be a dead end for some time into the future. At least as long as capital raising is tight...which could be at least 3-5 more years.
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(26 Comments)I appreciate the free model in terms of establishing a user base - lower all barriers to someone using your product. It's one that my team has considered.
However I think to execute on that strategy properly, the company must have sufficient outside funding - which is tough to do in the current environment.
I'd imagine it's extremely difficult to bootstrap a free product - I actually don't see how that could work. And I believe the 37 Signals team are big fans of bootstrapping (as am I), so there's a fundamental conflict in beliefs between "bootstrap" and "free".