Friday, February 24, 2012

Just enough free software

No one writes code for altruism. No one wakes up one beautiful day and decides to spend the next few thousand hours of his life staring and cursing at a computer monitor for the sole purpose of helping others. Whether explicit or not, the profit motive is the real driving force, so the question we as software publishers face is not whether we should give something out for free for the sake of helping the world or charge for it for the sake of profit but rather the question and the challenge we face is determining how much free is just enough free.

If you give out more than necessary you are sure to face a slow and painful "death" while somewhat paradoxically your software's popularity grows. If for example what you give out for free takes care of 90% of potential customers' needs you will hardly sell anything and will likely be "on the red" from start to finish. Your fall will become even more painful by the fact that all those users that have benefited from your work gradually grow to feel entitled – they demand that you continue improving your software while they will throw a fit if you dare to suggest that they should pay.

On the other hand, if you don't give out enough free there is a good chance that a low cost startup imitator or even a more powerful competitor will undercut you and potentially put you in a "death" spiral – the return on the investment you made starts to diminish rapidly, you are forced to make cuts on product development and marketing, the product gets outdated, sales start dropping and you, or at least that product, will soon be history.
How do you go about finding the right balance? I think the only safe way is to start giving out little to nothing for free. Give it sufficient time so that you have enough data to establish a reliable benchmark. Next, take another little step by increasing the value of what you are giving out for free and monitor the numbers very carefully. Keep repeating the process, a little bit at a time – chances are that you will find that as you increase the value of what you give out for free, up to a point, you will see the following happen:
  • Number of people using your product keeps increasing;
  • Percentage of people buying your product vs people using your product keeps decreasing
  • Number of people that buy your product keeps increasing
The moment you see the number of people buying your product stagnate or start to go down you know that you have reached the "magic" balance or that you have gone a bit too far and it is time to stop
How about going the other way? I think that is very hard to impossible to do – if you start with giving everything out for free, the moment you decide to start charging is the moment when you will see all your user base "evaporate" rapidly.
Here is the complete list of our products where you can see what we have decided to give out for free:
Redundant disclaimer: please note that this is a very simplistic view – in reality, this process is significantly harder to manage as those numbers mentioned above are affected by a multitude of factors that I have "conveniently" left out of the discussion.


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