Finally! A Free Lunch!

I wish I had a nickel for every time my mother told me “there’s no such thing as a free lunch”.  Most of us learned from an early age that if something sounds too good to be true, it probably is.  The funny thing is that we all either seem to forget that truism, or just abdicate reason and assume that the person offering the free lunch must have just figured out a way around the rules to which the rest of us are forced to adhere.  

What does this have to do with technology?  A lot, actually.  It never ceases to amaze me that people (me included) fall into the “free” trap.  If you are short on time, I’ll cut straight to the chase – there is always a cost.  At least once a year I hear of a company either directly competing or tangentially in a  market we serve who is offering a service at no-charge.  The initial reaction is fear: “oh no, how will we compete?”, then amazement: “how are they doing that?”, then anger: “what am I missing?”, then finally enlightenment: “ah hah, there’s the catch” or even sometimes “what in the world were they thinking?”.  Maybe its cynicism sneaking in with my old age, or maybe it’s just experience, but I’m getting much better at saving myself the trouble of going through the reaction cycle, and just wait for the inevitable “catch” to appear.  

I lived through shutting down a company that rode the free model to huge client acquisition gains, only to find we couldn’t reach profitability.  I’ve also watched as a half dozen companies that have sprung onto the public safety scene with free offerings, only to eventually either shut down or drastically change their model (much to the detriment of their customers).  Guess what?  It costs money to sustain a product, evolve it, and provide the proper level of customer support.  Furthermore, if what a vendor is doing is delivering value, customers will want to pay to keep it!

So, in the spirit of sharing lessons learned, let’s look at the common “catches” of Business-to-business free models:

1. We’ll make it up on volume or the google exit strategy.  In this model, the idea is to get such a large footprint of your service that someone that actually has a sustainable business model will eventually buy the vendor as a either a channel to sell something or as a feature of their broader offering.  This may actually work out for the customers assuming the business doesn’t going belly up spending its way to an exit, however, the reality is that most companies in this bucket either go out of business leaving their customers holding the bag or eventually try the painful transformation into a paid service with a sub-par offering.
2. Drug pusher strategy.  In this model, the vendor offers a basic level of service that is useful, but either requires extra services (read big consulting fees) to really deliver value or has frustrates you by withholding the features you really need (the freemium model).  Either way, you need to recognize going in that the service isn’t really free, but instead you are entering an extended sales process.  Again, as long as you go in with your eyes wide open this can be a decent way to test drive something but recognize that the long term investment may end up being more than a traditional procurement process for the optimal solution at the onset.  
3. Building a fence.  In this model, the vendor may actually have a sustainable business model but sees a potential competitive threat coming from an adjacent market and wants to cut it off.  The issue here is that, assuming the “threat” is actually focused on the service they are offering, it is very difficult for a vendor to create an offering of competitive caliber.  In other words, the vendor will offer some validation to the market but rarely actually provide a service of comparable value to the one they are trying undercut.  From a customer standpoint, you need to take a hard look at your requirements.  If the “free” offering actually meets your need with the service levels you expect, congrats you may have actually found the elusive free lunch; but I’m willing to bet the offering falls short – it was probably designed to cut someone else off, not solve your business problem. 
4. Advertising.  Need I say more?  Sure, there may be a way a vendor can make money offering a service for free in exchange for some form of advertising rights, but ultimately either you (the enterprise) or your customers will eventually need to respond to the ads for the vendor to make money.  Beware of the impact this model has on you (productivity, friction in a process, etc) or your customers (brand impact of ads, reduced value of your product, customer satisfaction, etc.).