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The Unintended Consequences of Freemium


I’m an old school software guy

Some of the first software I ever purchased was on floppies in a plastic bag with a piece of cardboard that had a label printed on it, tell me the name of the product. If I was lucky, a little piece of badly photocopied paper was in the plastic bag and it gave me some instructions on how to run (exec) the software.

This was before CompUSA existed, so these shops were tiny little ones in strip malls. And in those days, I promise you, I couldn’t even dream the future of the world we live in today.

Over time, we’ve seen big box retailers step into the distribution of software like it was any other piece of manufactured merchandise (with big designed boxes). And I remember asking a guy at CompUSA a question about a piece of software, only to watch him read the outside of the box like I had already done.

I can say that there are many wonderful things about the software industry.

A world where the distribution of software is fast, easy, and without much friction. So easy, in fact, that the old days of looking for software that would crack the encryption on a product so you could give it a key that would unlock extra features (something I heard other people do), are almost completely gone.

But from way back, I remember crippleware software from the floppy days when floppies were hard (making it confusing to talk about a hard disk). We would use the “lite” version and have to pay for the “unlocked” version. It was the way developers generated revenue and I don’t ever remember begrudging software developers.

It wasn’t until game software started costing $50 for a game that could be mastered in 4 days (again, other people – I suck at games). That got frustrating. Because suddenly software was crazy expensive (calculated by the length of game play).

But my point of this long rambling is that high price software didn’t change anything (except challenge others to improve their ray tracing). Crippleware didn’t change anything. Added features for added dollars didn’t change anything.

And then Fred Wilson, or some other venture capitalist (in the early part of the last decade), coined a new business model: freemium.

And everything changed. And my contention is that everything changed for the worse. But to make my point, I want to tell you a non-software story.

The best hammock in the world

In college I spent two summers volunteering in the Yucatan peninsula. I was working with college students and taking them out of their comfort zone by having them live in towns that had a single toilet in the whole town. Yeah, crazy.

But for all that “leaving comfort” talk, the thing I loved most was the hammock that I would sleep in every night. These were the hammocks that were created by hand. They were soft. They were huge. And they provided some of the best sleep ever. (So much so, that I brought one home and slept in it for the entire following school year.)

I later found out that these hammocks took an entire week to create. A whole week. That’s serious work. But I appreciated all the work, because I got some seriously awesome sleep.

So when I went to buy one, to take home with me, you can imagine my shock at the price. For a woman’s full week of work. With markup. Yes, $20. That’s it. One person working diligently for 40-50 hours resulted in an incredible product. And it only cost $20. I remember leaving them $40 because I couldn’t stand the thought of only paying $20.

I valued their work too much.

I’m not looking at this from a business perspective

When people talk about freemium, I don’t really care about the consequences to your revenue. I don’t really care about the organic growth that may come. I don’t even care about the traction and any cohort analysis that shows your conversion is looking good.

No, I have a physical response when it comes to the freemium model. Much like I had when I found out that a week’s worth of serious work was only $20. I remember asking myself what kind of world we lived in where people who sat in air-conditioned rooms answering phones (my day job had been as a telemarketer right before that summer) could make that in an hour.

The unintended consequences of freemium

The unintended consequences of freemium aren’t about business models. They’re not about revenue. They’re not about organic growth.

No, to me, the unintended consequences of freemium is that we’ve all been conditioned to devalue the real and serious labors of someone else.

Someone that is just as human as we are. Someone who may work just as hard (or harder).

Apple announced that their software would be free this past week. And I get it. I know what they’re doing. But it’s what else they’re doing that bothers me. Because they’re helping you and me think that software is easy and should pretty much be free.

My son plays games on his iPod touch. Do you know there are some games that start as free but can’t be completed unless you pay more for them? His understanding of the software world is that building the software is easy (and free) and that it’s only the special jewels or shields that really cost money.

In fact, if I have my numbers right, at one point last year, 48 or the top 50 Apple iTunes games (by revenue) leveraged in-app purchasing. We’re now teaching software developers the same thing we’re telling my son. The software part isn’t where you’ll make your money. It’s all in the jewels and shields.

I know, I forgot to start this post with my <rant> tag opening, but I gotta tell you, the unintended consequences concern me.

I’ve shared this fact with others before, but the stats are that if you raise your price from 0 to $1/year on membership sites, you’ll see an attrition of up to 30%. That’s 3 of every 10 people who are saying they never planned to ever give you a single dollar. They value you and your work so little – because they’ve been conditioned to do it – that a dollar is insulting to them.

They want free. And you know who’s fault it is? Our own.

I’m not even a fan of free when it comes to platforms

A friend of mine and I wrote some tweets to each other today and he challenged me to look at free from the perspective of platforms. His tweet was this:

@chrislema Browser innovation calmed down when they became free. Then they became a platform for ads (Chrome) and innovation continues. — Jason Coleman (@jason_coleman) October 26, 2013

And it’s true that when browsers were free, they became a platform for ads. But I don’t think the thousands of people who worked at Netscape who lost their jobs cared much about a future redemption by ads.

Netscape released a free (beta) browser to the world. Tons of us kept downloading the next beta, keeping the product free to all of us. And they made a bit of money on it – instead generating most of their revenue from servers.

But one day Microsoft heard the Netscape guys talking about the browser being the new OS, and that everything would run inside a browser. So Microsoft got involved.

Free browser. Free web server.

And Netscape lost tons of market share and people lost tons of jobs. And you and I didn’t care. Because we got browsers for free. Like Firefox and Chrome.

And now, which one of us is looking for a browser that we can purchase? None of us. Because the unintended consequences are to embrace free. To expect free. And to balk when things cost money.

Until recently, it was for browsers. But then Apple introduced iPod touches and games for $.99 and free. And now they’ve introduced Keynote and other business software – all for free.

And the unintended consequence?

We want free. And you know who’s fault it is? Our own.

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