Frail Pricing

I’ve been thinking about business models quite a bit lately.  Mostly because of the work I am doing on cloud services.  In fact, many of the conversations I have been having at our Worldwide Partner Conference over the last few days have specifically focused on cloud compute business models.  I am going to put this out there, and let the VCs be damned.  There’s a reason that “free” and “fail” both start with “f” and have four letters.  “Free” is my new four letter word.  A business model that is based on free is frail and bound to fail.

At some point, the tyranny of the free has to go away.  Mashable had a similar article just the other day.  37Signals hammers on this point constantly.  It’s real simple, as far as I am concerned.  Make something, sell it, make more, and then sell more.  It’s a nice virtuous cycle.  I have lost count of the number of partners with whom I have met this week who have multiple millions of dollars in revenue attached to coding (ISVs or custom application development).  Selling ads against your app requires scale.  Scale comes to a very small number of apps.  There’s a ton of software left to be written that will never be used by enough people to be ad supported.

I want to offer the following: The free movement is completely wrong minded.  I speak from personal experience on this one.  The company I just sold has software+services that are completely free.  In just 14 months, we signed up 150K users, but the app didn’t have an engagement model that supported high numbers of page views.  We listened to one very loud board member who insisted that we be free and never charged for the product.  In the end, we sold the company (for a good result), but we were on fumes.  Developers need to be paid, and they don’t accept page views.  Had we started charging from the outset, I suspect we would not have sold so soon.

In the next few weeks, I plan to have some posts on the business models that are out there and what probably makes sense around cloud compute, but we, as an industry, have to refocus on solving real problems, and charging money for those things.  The penny-gap is getting harder and harder to cross with so much downward pressure on pricing from people who are willing to give stuff away for free.