The debate over ‘free’ as a business model is one that is exercising the minds of many saas providers. Like my colleague Phil Wainewright, I see many variations and each has its own merits. Like Phil, I agree that free is not a business model:
I suspect most practitioners in the SaaS industry will be surprised to learn that freemium is now their main business model, as [Chris] Anderson asserts. That may be true for productivity software vendors — Zoho, Google Apps and Adobe all practice a freemium model — but I’d find it hard to identify any freemium in the business models of leading SaaS application vendors such as Salesforce.com, NetSuite and SuccessFactors. Freemium won’t work for everyone.
It sure as heck won’t work in the accounting market because there is no guarantee that you will ever be able to upgrade a user to a paid user but will still bear the brunt of operating costs associated with all users. Or rather, the value that can be obtained from paying customers has to be high enough to warrant providing the free version. At least in most cases I can identify.
Over the weekend, the discussion took a fresh turn when Aaron Levie the CEO and co-founder of Box.net was invited to contribute on the topic over at TechCrunch. He says:
Freemium allows the actual consumer of the technology to make decisions in an unprecedented way: if the product doesn’t solve their problem, they move on to something else. This forces you to create better, more usable products, and not simply build your business on aggressive and costly marketing and sales. Instead of focusing primarily on the purchasing party (often an IT or department manager), the model is inverted, with more power being put in the hands of the end-user of the technology.
Well that’s right, except what happens when what you’re offering is ‘good enough’ as is often that case for very small businesses? Even so, Levie does make a good point:
If your service offers true ROI once implemented, why not let me implement it for free and charge me once I achieve some success? These strategies will reduce the sales friction of any service, allow businesses to be more competitive, and expand the potential market dramatically.
Unfortunately, that’s really hard to apply to business applications like pure accounting. That’s why in part I believe that the new breed of applications will no longer be pidgeon holed as ‘accounting’ but as ‘business’ apps. Accounting after all is the result of transactions already made. It should be as low touch and as far in the background as possible while retaining enough for an accountant to get their arms around with some degree of comfort. It is why I like all the apps you see in the right hand sponsored feeds panel. They’re all coming at the problem of how you maintain business records but adding a piece of something else to make it worthwhile considering as an alternative to the pure play.
As always, the question for buyers comes back to something that never goes away: where do I get the best value for the money I need to expend? Fortunately, we’re seeing an ever increasing list of vendors coming to market with novel solutions to common issues that in the past might well require two, three or more products, none of which would likely work together.
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