Your Product is Free Because You’re Lazy and Scared
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David over at 37signals had a nice post today about why startups seem to have abandoned charging customers for goods and services: ”How did the web lose faith in charging for stuff?.
Of course, I agree with charging people for a quality product. I make my living doing it. However, I think there’s a point he’s missing in there. It’s a point that people often put aside as not the primary reason, but I think it’s a much more prominent factor than people think. What’s changed in the past few years is that many startups are founded by programmers and programmers are inherently lazy.
In most cases, this is a good trait for a programmer. It leads to wanting to do things more efficiently, maximize speed, and can even lead to better quality IMHO. However, when it comes to running a business this attribute has some negative consequences. In my work the one I most often see is the total disregard for customer service.
Customer service is almost always viewed as a necessary evil. Annoying customers always poking around looking for answers to things which are right in front of them and causing us to take time out of programming to help them.
So this leads into the great cop-out. Make it beta and hey, make it free. Those 2 tags let the programmer get out of so much. Customer has a problem? Screw off, it’s free. Can’t find a phone number or email address to contact us by? Screw off, it’s free.
It’s so much easier to think that Google’s going to buy you and that’s how you’ll get paid or that throwing up a Google ad will make you so much money that you can safely ignore the ad clicking drones users.
Things that are outside your comfort zone are always scary and I think that’s the case here. Programming focused startups fear customer service. They’d much rather have a half hidden link to a forum they occasionally check (only after a 36 hour Mountain Dew fueled coding session) than a prominent email address which they answer promptly.
In some ways of course they’re not wrong. It does take an incredible amount of time to answer all those emails. On the other hand, if you have more emails than you can handle that’s probably a good sign. Also, those people who take the time to email in often end up being your best customers and biggest spokespeople. They have more than just time invested, they have hard cash invested and that’s a big difference. They want you to succeed, they’re loyal and they are in many ways a new companies biggest asset.
David obviously has a business focused mind and 37 started out as a customer focused company, which is why it seems logical to them to charge for things you create. I think this is very much the exception these days so it’ll be interesting to see if David is correct and this starts to swing the other way.
On the upside, us profitable money charging companies can just keep tooling along 
Discussion
Thanks Ian,
great read!
Created by Torsten Uhlmann on 03.09.2009 12:31 pm
Well said Ian, I nearly fell off my chair when the title popped up in my RSS reader. You're certainly a braver man than me to put that into words.
Derek.
Created by Derek Pollard on 03.10.2009 6:29 am
You can always just charge a dollar.
Created by Practicality on 03.10.2009 10:32 am
@Practicality but think about the message even a dollar sends about your product/service. I think you'd get more respect giving it away then to charge a dollar.
In pricing your product/service you have to figure out whether or not you are hindering it's reputation by offering it at a ridiculously low price.
Created by Ralph Whitbeck on 03.10.2009 10:45 am
I don't think anyone would call Larry or Serge lazy or stupid, yet Google's "beta" email and many other products do pretty well.
Many companies have been able to provide services for "free" and have managed to do pretty well. None of them actually do it for free, as advertising causes money to change hands somewhere down the line. Often that's through someone else's network, but in some cases (Google, Yahoo!, Facebook, Myspace) the provider is large enough to have their own ad network.
I'm not saying that charging directly for a product or service is wrong either, it just works for different products and services. If you can charge directly, great. Just as there are broadcast (free) and subscription models for television and radio, there is room for more than one model in software.
Created by Chris on 03.10.2009 11:05 am
@Derek, thanks
@Ralph, sure this isn't for every single product under all circumstances. Obviously Google shouldn't charge to use it's search engine, etc.
@Chris, sure like I said above to Ralph. This touches on another sore topic for me though which is startups thinking they're going to become Google, Yahoo, Facebook. 99% of the time using those as references for your own business is the wrong move. I think most startups would do much better if they focused on being upper middle class wealthy instead of reaching for Jay-Z wealthy.
Created by Ian on 03.10.2009 1:15 pm
+1 to the article, Ian. I agree with Derek's reaction, a brave man to most this article.
Created by Scott Kane on 03.11.2009 8:51 am
Thanks Scott
Created by Ian on 03.11.2009 3:58 pm
Many startups decide not to charge because charging instantly sets a cap on their valuation. Twitter, for example, is worth hundreds of millions (if not billions) on paper. I know it sounds ridiculous that no revenue can make a company worth more, but it allows the business development team to paint a portrait closer to "potential" than "reality."
Ian, I know you'd rather build your business organically as opposed to an acquisition. That makes perfect sense for a business you've intentionally designed to be low overhead. On the other hand, some businesses require lots of up-front capital...take YouTube for example. The only way for a server-intensive site like YouTube to afford continued growth was to be bought. Let's pretend that in order to bring some money in (so they could hire customer service reps) they charged $1 per video uploaded (just bear with me). Even if they host a million new videos a month, for a total of $12 million annually, at a 40x valuation they would have been worth only $480 million. Like it or not, growing a company from nothing to a $1.65 billion valuation in less than two years takes more than just luck.
Most businesses survive by starting small, keeping overhead low, and growing organically. It's true that Free product companies are successful much less often, but for those that are it is usually a much larger payout. There's a reason why those companies most often fall into the "startup" world and receive "venture" capital - both words suggest a risky endeavor. It's a craps shoot, not a business, and they probably shouldn't be compared to small businesses as if they are equal.
Created by Gil on 03.13.2009 3:46 pm