Sometimes Free is the Only Way
By Phil Wainewright
July 12, 2001
Free services are disappearing off the Internet so fast, it seems, that soon even casual surfers will have to pay for everything. Has the pendulum swung too far?
This time last year, the high quality and value of some of the things that were being offered for free on the Web reached absurd proportions. This year, overreaction will make the exact opposite become true. An increasing number of former dot-coms will attempt to impose charges for services of no intrinsic value whatsoever.
When Free Works
Sometimes free really does work as part of a viable Internet business proposition. The trick for online providers is knowing when a free service has value for their business and when it is merely a drain on resources. Here are some examples where free is essential to your success:
Viral marketing — if you want your customers and prospects to tell others about your services, then you need to give them something they're happy to pass on to others. If nothing's free, you have no vehicle for viral marketing.
Harvesting prospects — A free service that keeps live prospects hooked is an invaluable asset. As long as they're regular users, it keeps your service front of mind for them, and keeps them away from potential competitors. Another big plus: it gives your sales team a ready-made prospect list to mine.
Trials and pilots — A free-trial period of between 30 and 90 days (or even indefinitely for restricted usage) gives customers time to work out how the service will fit into their business and make sure they'll extract maximum value once they start paying.
Micro-usage — If the cost of setting up the user account and processing payments is more than the price of the service, there's no point in charging for it. Leave this category of service free and turn it into one of the above — or scrap it.
When Free Doesn't Work
On the other hand, there are plenty of examples where free never pays. These will always be a drain on resources. Avoid them:
Casual usage — Services that are of passing value to casual users — classic examples are online file storage or Web-based email — are prone to build up huge membership lists of anonymous, largely inactive users. A successful free service is one that engages users in an activity that has recurring value for them.
Generic appeal — A service that appeals to individuals, families and voluntary groups just as much as it appeals to businesses will acquire a large following of users that will never become paying subscribers. Accentuate business-grade branding, features and case studies to deter non-business users.
Bargain basement — A service that has had all the value squeezed out of it in order to stay free will attract only users who lack judgement, money and loyalty. This is not what you want as your core target customer base.
From Free to Fee
The problem for many providers moving from free to fee is that most of their users are of the types best avoided, since those were the easiest types of users to acquire in the days when raw traffic was valued above all other metrics. Conversely, few of their services offer sufficient value to engage and convert potential subscribers of substance. We may have seen the death of free, but that doesn't mean that providers can simply switch on a fee for services that they previously funded out of advertising. When subscribers pay real money, they expect much higher levels of value and service quality.
Fortunately, there are success models today that demonstrate how to make free work as a tool to acquire customers. For Web-native online providers, it still remains the only way to reach a volume market without going through channels — and thus an essential initial tactic for establishing the market momentum that makes channel partners want to come aboard.
Fast-growing providers in the ASPnews Top 20 and Global 200, such as UpShot, WebSideStory, Atomz and others are using free as an acquisition tool. All share the same success ingredients:
- The service attracts businesses but has no significant appeal for nonprofits, families and individuals
- It awakens an appetite for a premium service that is a direct and immediate upgrade from the free service
- The premium service scales all the way to enterprise strength and capability
Most importantly, they all set out to build a solid business based on revenues earned from fee-based services. This is not something that can be grafted onto an existing, banner-ad funded dot-com play. It takes total commitment to delivering intrinsic value - even in those parts of the service that are delivered for free.