Why is web software given away for free (and why it’s bad)?

Why is web software given away for free (and why it’s bad)?

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“salesman”, by j4p4n on Openclipart

Now, I’m talking about web apps/software as a service, here—mostly because that’s what I’m interested in, and also because desktop software is a totally different ecosystem that I’m not that familiar with.

The point is: why are web apps given away for free? Is it good? You see it everywhere: free accounts, 1 terabyte of storage for free, free this, free that, etc. etc., but it only happens with software. You won’t go to a restaurant and even think for a moment you could just eat and not pay the bill, right?. Well—how come?

People just don’t want to pay

I tried to find an answer to why people feel comfortable or don’t want to pay for web apps. Although it’s probably kids who have too much time on their hands—I don’t know—the first Google result was from Yahoo! Answers, and the chosen answer was this: “because no one wants to waste their investment on a software”.

Waste!? Fair enough. If it’s “wasting” it means it has no value to you, so why are you even looking at it and especially using it? No idea.

Of course, I just kept looking.

From what I could find, no one really knows the answer for sure or can pinpoint one particular reason, but here are a few ideas that most seem to agree with:

  • there’s a mindset on the Internet that everything should be free, promoted by the media and universities, probably since the very beginning
  • ideas should be free/people are reluctant to pay for intellectual work, understand and would pay for the guy who screws the nut, but not the designer of the car
  • not paying for software is different than stealing an apple, since with the apple you’re depriving the seller from an actual good that he could have sold to somebody, not paying for software seems like a victimless crime
  • don’t see the value
  • don’t understand/ don’t know how it’s done, again don’t see the value

At the end of the day, it seems as if people don’t realize a web app is of value to them or has value in general, and therefore won’t feel good paying for it.

That doesn’t really fully answer the question, but confirms the hypothesis.

Should you pay for web software?

Most societies are based on money, so everybody needs money to live. What don’t you pay for? I’ll tell you: the only thing you don’t pay for is thinking, because they haven’t found a way to tax it (you know, all those dirty thoughts…). Everything else you pay for, in one way or another.

You pay for water, food, any goods like your bike, car, clothes, house, etc. etc. You pay for whatever has some value to you. It’s normal to think that if someone can provide something valuable you’d want it, and that that creates a need/demand and an exchange of money, to repay the seller for the work that went into producing or acquiring the good.

Software should be the same: you see something of value to you, and a lot of time and money were spent to bring it to market, so you’d want to pay for it.

Why is software valuable?

The idea

First, any web app starts with an idea, and ideas do have value. They come from learning a lot of stuff in your field and more, and of course your unique ingenuity.

There are traditional business models to prove this point: think for instance about people who file patents. Some don’t even implement their idea, and just make money off having thought about  it—and let alone patent trolls, who not only don’t implement the idea, but didn’t even have it in the first place—they just bought it by the kilo—and just sue companies claiming they’re using their idea (which usually ends with a settlement).

So, just the idea for the web app would make it have monetary value, just like anything else. But, there’s more.

Implementing an idea costs money

Second, a huge amount of work goes into taking any idea and turning it into a functional web app.

You need designers, programmers, and system admins to say the least, and all these are high-level jobs, where professionals will actually want to get paid a good salary to work for you and do a great job. Then, you add office and equipment expenses. Accountants, lawyers, various fees, etc. and they add up.

It can easily cost $200,000 to create even a simple well-done app.

Of course, if you do everything yourself you won’t have to pay anybody, but will put an endless amount of hours working on it, which undoubtedly have value and a dollar amount could be easily estimated.

Keeping the app alive

Maintaining a web app also costs a lot of money and work.

Apps are not like books, where once all the work is done and the book is printed the actual product itself won’t change. Besides of course marketing, etc. with software you actually need to keep working on it.

Software is constantly improved, debugged, new features are added all the time, etc.: that means more people working on it, so more designers, programmers, marketing. Of course, if a product is successful the app needs to be extremely solid, and more or top-notch people will need to work on it, meaning higher salaries.

Also, you need to keep it online. To be online, a web app needs to be on a server, and hosting and bandwidth can cost thousands/month even with medium-sized websites or web apps. That comes with the need for system admins, who charge at least 70-90/h here in Europe (and from my experience). Of course, again if your app is popular you’ll need more and/or better servers, adding to hosting expenses.

Last but not least, you need great customer support. That means emails, a call center, 1-800 number and a lot more, adding huge expenses that get higher the more people use the app.

Free/freemium apps

Most web apps—since people aren’t usually willing to pay for them—offer their service for free. That is, they don’t ask for money—and sometimes start with no business model at all—and try to get on the market and attract users by not charging them.

As for keeping afloat, by pitching your idea or especially once you have a few million users you can have venture capitalists invest in your business, so give you money in exchange for a share of the company. You can also start charging (it’s been done before), since people will then already depend on your app and will have no choice but upgrade. Or, of course you can sell everything to a bigger company. All these things are great, but horrible in the long run.

With freemium, since the beginning they’ll let you use the app, but charge you for additional features. I like this business model better, although I don’t think it’s ideal at all. Charging is the best option for both the user and the business (why..? read on).

Why is this bad?

All right, so why are these business models bad?

I think that free is awful, and freemium can work but is not ideal. I’m talking of course about the company, but most importantly the users.

Bad for the company

As for the company, I mentioned a few things that they can do to keep the business afloat, but they are all far from perfect.

Investors

If you accept investments in exchange for stock, you can unknowingly give away your freedom. Most big investment firm would want to put somebody from the company on the board, and might end up making you hire people you wouldn’t hire, using services you wouldn’t use, etc.

Also, you are giving away part of your project.

Starting to charge

If you start charging, you will upset a lot of people.

It’s been done before and even successfully, but when you offered your service for free it’s like you made a promise not to charge your users in the future: they’ve probably spent a lot of time adding content (or similar) to your platform, and now feel cheated since moving away will just be a pain for them. Also, it’s hard to convince (or force) somebody to start paying for something that’s always been free, since their perceived value is now of something that should be free.

Since you care about your users, you won’t want to make them unhappy, and you said it was free! What changed? Miscalculated? They’d have been fine had you started to charge since the beginning, but mostly you wouldn’t look bad nor become a problem for your early supporters.

Selling out

If you sell to a big company, most times than not you can say goodbye to your project and—if you’re like most entrepreneurs—that’s like your baby and you’ll feel awful.

It’s happened 100,000 times and there are many articles about it: when a small startup gets incorporated by a bigger company most often than not all of a sudden your service is not the center of the attention anymore, but just another one amongst their 1000 projects.

You and your team are of course usually required to work within the company for 1-2 years, so you see it first hand. You are given limited resources, your users—who you care so much about—start to complain and abandon the platform while development stalls.

Then, the big company shuts it down since no one is using it anymore because they’ve been neglecting it.

You’ll feel like sure—you have a lot of money, but you don’t really know what to do next. Also, if your project was bought it means it was popular, and you might be lucky again but most of the times you’ll try starting another 100 startups and no one cares and will never be popular.

Bad for the user

Now, users. Why is free bad for the user?

They would actually pay you if you let them

First of all, I personally think that—although a minority—a fair percentage of people would still love to pay for a service that is useful to them.

I personally do. I’ve started using Vimeo and I was so happy about the UX and how much better it is than YouTube (another victim of not charging users, preferring to alienate them with 15-seconds ads to watch a 30-seconds video) that I’ve bought a premium subscription on the very first day. I’ve had a subscription to project management web app Basecamp, time management web app Freckle, and accounting web app FreshBooks for many years. I’d say between all of them I give these companies at least $60/mo. (and it’s totally worth it).

I’ve also seen it many times, where happy users post on the forum to ask if there is a way to pay for or donate to the product, to support development or just to thank for developing it.

Crappy software/servers/support

I haven’t conducted any scientific study, but it’s pretty logical to think that unless you have inherited a couple millions from your dead uncle, if you don’t get paid either you can’t provide or can’t keep up with the cost of great software, servers, and customer service.

That again means that your users will be unhappy. There will be more bugs than there should be, no one to help them in case of problems—if not a forum but there could be a community or not behind your product, and bare-minimum hosting, which could lead to bad performance or even data loss.

Your goal should be to make your users happy, and if you do they would gladly pay for your product.

Having to shut down

This is actually insanely ironic, but it makes sense if you think about it: the more popular your project gets, the higher it will be likely that you’ll need to shut down the service. Why? Pretty simple: you don’t have a business model and therefore limited resources. Since more people mean more servers, bandwidth, and scaling the software, and you’ll be spending more and more money as your user base grows, sooner or later you’ll have to shut down to not go bankrupt.

Having to shut down is pretty horrible, for a couple of reasons. First, you got lucky and your project is popular, possibly being featured on WiredArs Technica or what have you, but after all this work to get there and having made it while 99% of all projects everything goes to waste. And chances are another opportunity like that won’t happen again. Second, right when you’re in the spotlight you look like a fool. Last but not least, you could have made a lot of money had you charged people!

For the user in particular the damage is incalculable: they lose a lot of content, and all the hours they put into it. In addition, they might have based some kind of business around your service, so they might even lose actual revenues and clients. Wouldn’t you think that they’d have been more than happy to pay for the app since they like it and are using it, rather than go through all this? I think so.

I personally used to use a few services that had to shut down because they had a horrible (or fake, for the investors) business model. Some sent me an email apologizing. Most would display a notice on the site a while before going offline, but I wouldn’t visit every day, so I’d just go there and it’d say “Sorry, x is not available anymore”. Some just disappeared—no notice, no email, nothing. In particular, I was pretty shocked about this web app that claimed to offer cloud drive/backup services (so you’d keep all your files there and edit what you had to edit directly within the app), and all of a sudden went offline without any warning nor notice. There was nothing at their domain name, kind of when a domain is expired or doesn’t exist. Their business plan was freemium, but IMO it was just for investors, as it didn’t make any sense: up to [more space that you’d ever need in a lifetime] or so for free, and $7/year (not a month!) for [more than you and your family would ever need in their lifetime]—which obviously nobody would get since the free version was more than enough. Now, imagine if I actually listened to them and used their service as my primary hard drive where I’d keep all my files! Amazing.

Benefits of charging

I’ve outlined what I think are the cons to charging people for web apps. Now I’d like to briefly go over the pros.

First of all, I’d say that of course you don’t experience the problems mentioned above:

Your company is independent of any investors or company, so you can do what you want and actually make it your #1 priority, while keeping full control of it.

You don’t have to all of a sudden start charging while the service was free, so you keep your customers happy.

If your project becomes successful, you actually make a ton of money, and you won’t have to shut down, causing your users to lose all their content.

Most importantly, you can offer great service: you have money for servers, developers, and happiness engineers to provide great customers support.

To sum it up, you make and keep your customers happy, which is the most important thing.

Conclusion

I’ve studied business administration, but I’m no luminary. I did however read a lot of articles (both for and against how I see it), and have been totally opposed and confused by all these web apps giving stuff away for free, only to shut down a few months or years later if investors changed their mind, with thousands of users depending on their service.

In the past few months I’ve been building a CMS called Snaplive, but never thought I’d give it away for free. Since day 1 the plan has been to do give it away for free as free, open-source software to web developers on snaplive.org, but offering a hosted version on snaplive.com with it ready to go for a fee, to support myself and family and of course provide great service to customers. On top of that and most importantly, to have the resources to continue developing it and supporting it. I’ll also try with a Kickstarter campaign to speed up development and GitHub release.

I think it’s bad giving web apps away for free, both for the user and the developer. I’ve tried to explain why. If you have anything to add (or disagree with me) please add a comment. I always respond.

Niccolò Brogi, 01/07/2013

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