Chris Anderson of Wired said that Free is the price of the future. Some of us beg to differ. Among those with other opinions are Lincoln Murphy of 16 Ventures who published a paper called The Reality of Freemium in SaaS, and Dave McClure, who wrote Subscriptions are the new Black on his always entertaining and provocative blog Master of 500 Hats.
Lincoln notes that “free” is a marketing tactic, not a pricing strategy. (As a pricing strategy, free can work well as a defensive move to discourage other entrants from building free or cheap products that could threaten your core business. It’s a hard way to build a core business.)
McClure writes (rants?)
ASSERTION #2: The default startup business model for 2010 & beyond will be subscriptions and transactions (e-commerce, digital goods).
Newsflash folks: The Internet does NOT want to be FREE… It wants to GET PAID on F&*&ing Friday, just like everybody else on the damn planet.
What does this mean? It means you have to think about the value your customers receive from using your offering, and how that value compares to their alternatives, including the option of doing what they are doing today. Value includes both positive and negative elements. For example, saving time might be a positive value, whose worth depends on how much time and whose time you’re saving. Signup time or data migration time would be a negative value. If you can’t generate a strong value proposition and get your prospects to believe it, you’re going to be in trouble.
This can be especially hard for tech companies that create cool technology and focus on the features. Features don’t have value. Features can create value by providing benefits, but it’s the benefits that create value.