The real cost of free

Why not make it free?

Lots of start-ups have to answer this question when considering what they charge for their new products or services.

Here is a good answer, as re-told to me by an NGO worker I met in Africa, who faces an expectation of providing things for free both from the poor people he is trying to serve and the rich donors who enable him to be there…

“When you ask me to give something to you for free, you are giving me all the power – to choose who gets what and when. And, to be honest, I don’t believe you really want to give me that power.”

“When you pay me you create an expectation that I will deliver value for money. I may or may not, and that is the risk you take, but the expectation exists nonetheless.”

There is no such thing as free!

Yet, just about all of the web services I use most frequently appear to cost me nothing: Google, Gmail, Reader, Twitter, TripIt, Connect, DropBox, Delicious, not to mention all of the free news sites.  Would I pay for any of those?  I don’t know.  In the very least it would probably cause me to reconsider the value I’m getting in return.

WordPress is a good counter example.  While there is a free version, I choose to pay a few dollars a year to use my own URL, which effectively buys me freedom to switch this site to a different provider in the future if I choose to.  In a tiny little way, and a much larger way when you aggregate across millions of users, that keeps them on their toes.

It’s worth thinking about what you’re giving up next time you appear to get something for nothing.

Related:

The infestation of the abstract business model, by Layton Duncan

The penny gap, by Josh Kopelman

Free: How today’s smartest businesses profit by giving something away, by Chris Anderson [Book]

The freemium company lifecycle challenge, by Mark Cuban

2 thoughts on “The real cost of free”

  1. I’m a bit confused as to what you mean the real cost of free is. Is the real cost of free that you should have no expectation of value from that product? But is that true? Even though gmail.com and hotmail.com are free, we still expect value from them, and I would say to at least the same standard of value that I get from my ISP’s email account (or even higher due to the brand names).

    I think in the end people these days are used to taking into account many factors, including financial, into the actual cost of using a service, say YouTube versus Vimeo for uploading their movies. While they’re both free, one has more viewers, one has a more targeted community, one has the potential to make a video go viral, the other offers better quality.

    I have seen that consumers are now quite adverse to paying for services on the web. Google has taught consumers that they can get really high quality products for fiscally nothing. So really it seems to me that getting someone else to pay rather than the consumer is one of the better business models out there at the moment. Take heaps.co.nz with their integration with Kiwibank. I wouldn’t pay for Heaps, and I wouldn’t pay for Kiwibank, but I would switch to Kiwibank because they offer Heaps to me for fiscally nothing, and I will use Heaps because it costs me fiscally nothing to do so. And both Kiwbank and Heaps get my business!

    1. You might expect value from free services like Gmail and Hotmail, and you’re right that many people have started to take these services and the value they provide forgranted. My point is that without payment those expectations have no real basis.

      Heaps is not a free service. It costs Kiwibank real money to build and maintain the site. They treat that as a marketing expense and provide the service to you as a customer at no additional cost, over and above what the other fees they already charge you. And, to the extent that you come to depend on that tool you are also dependent on their willingness to continue to provide it to you for free.

      Does that make sense?

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