Since the Web came back to life – aka Web 2.0 – there has been ongoing debate about free vs. fee. It’s been ignited again today by a guest post on Silicon Valley Insider suggesting that free services are a bad thing, and that the fault lies at the feet of venture capitalists that are providing money to start-ups with business models that rely on advertising.
It’s an argument that’s entertainment, attracts a lot of traffic, ignites hearty discussion but ignores the reality that free and fee can happily co-exist. If you’re looking for a response to the SVI post from someone who knows, check out Don MacAskill, whose family owns and operates SmugMug.
SmugMug is not only one of the biggest photo-sharing services but it actually has 300,000 customers who pay an annual fee. What I particularly like about Don’s post is he sees free sites as good for his business. Huh? Don suggests free is fine because of the following:
- Free training. Lots of our customers go chew up customer service dollars somewhere else first, learning the basics of how to upload, share, etc, before coming to us. By the time they get to us, they know the ropes and getting up to speed is easy.
- They’ve seen how bad it is elsewhere. By comparison, our product looks amazing. The ‘Wow factor’ is huge.
- Coattails marketing. We don’t have to spend a lot of money raising awareness of the photo sharing concept – other, bigger companies are doing it for us.
- Keeps us on our toes. As if our customers weren’t enough to keep us nimble, big deep-pocketed competitors surround us on all sides. Try slowing down and we die.
These are pretty refreshing thoughts from someone trying to convince customers they should pay for an online service but they make sense.
For companies trying to compete with a free service, it comes down the quality of your service. If it meets the needs of enough customers and does a bunch of other things right (marketing, customer service, etc.), free services can attract enough people to attract advertising, which, in turn, creates a sustainable business model.
For more thoughts on fee vs. free, check out my friend Mathew Ingram who makes it clear that blaming the VCs for encouraging the free model is wrong.