Getting the "Free" Business Model Wrong Doesn't Mean the Model is Flawed

While "free" seems to be an increasingly popular business model, there are quite a few people who seem to be completely bungling what to do with "free" and then complaining when it doesn't work. Techdirt takes a look at some of the arguments surrounding why free as a business model may or may not work and why many of these arguments, while prevalent, just don't hold water. "you give away the infinite goods, not the scarce goods. Your time is a scarce good. No one is saying that everything needs to be free -- they're saying that infinite goods will be free, because of it's very nature in economics. In fact, Poole's argument is particularly weak when it comes to programmers, because most programmers don't earn any kind of royalties for the software they write. They are paid a salary, for their time -- but not for the software itself (which is an infinite good). And, I won't even get into the number of programmers who work on open source projects for free ... or the fact that Poole is blogging for free ..."

Comments

It's been said before...

[palegray.net]

Allow me to say it yet again. If you're depending on something like advertising revenue alone to support your free product, you'd better make sure it's licensed appropriately and you understand your target audience. For software projects, it frequently makes a lot more sense to charge for support and feature enhancement. It frequently makes sense to give the software itself away under an OSI license (the approach I usually take).

This means you're placing the value on your time. If people want installation help, custom configuration, or even hosting services for your application/software suite, you charge them. Ongoing maintenance? Charge them. Everything doesn't have to be free, something people seem to frequently forget.

Re:I laugh

[zappepcs]

Exactly. What he said!

When people that I deal with sit down, open a few documents, surf a bit, check out pictures on their camera... well, they almost invariably say "oh, it's just like MS. What is it called again?" Then after a bit more conversation, I have to explain that they don't need windows to run GNU/Linux, that it's a free alternative to MS Windows and it has alternatives for all the MS software that you have been using. In fact, some of it is better than MS software, and all of it is free! Mind you, you can contribute/donate to projects/software that you find very useful, but you don't have to give them hundreds or even tens of dollars. You can install it on any number of machines, and it won't prompt you for a license key. It has none of those MS annoyances. All software has some, that is how things work, but GNU/Linux importantly is missing the really nasty annoyances like fees, and restrictions etc.

Once that sinks in, they agree that it really is a cool thing. Linux good, MS... not so much.

How ignorant.

[Score Whore]

I wonder at Techdirt's economic and business background. They make a fundamental error in they're argument that programmers are being paid for their time and not for their code. The problem is that most every programmer who is being paid for their time, doesn't own the code they produce. Those who are contracting aren't being paid for their time, they're being paid for a solution to a problem. The remaining few who are paid for their time but negotiated up front for a free license are so rare that they're basically ignorable.

The fact that they've made such a basic blunder in understanding the actual mechanics of the industry makes me wonder, even in the presence of their semi-sophisticated talk of scarcity, what they actually know about business.

Re:How ignorant.

[palegray.net]

I recently got paid for my time developing a product, negotiated an open license for it, and retained copyright to the code. I think if more programmers were simple aware of these options, and knew how to show their customers the benefits of such arrangements, we'd have a lot adoption of this practice.

Re:How ignorant.

[Score Whore]

Maybe. There are few circumstances where a customer will allow you to keep copyright to the code. Two of them are:

1) It's something that they could buy, but you're selling it to them cheaper. Or
2) It gives them no business advantage over their competitors.

In case 1, you're going to continually fight a battle trying to price your sale lower than the competition. In case 2, you'll find an upper limit on what the customer is willing to pay.

Re:How ignorant.

[cduffy]

I've been the employer allowing a contractor to keep copyright to his code. Why? The contractor was the maintainer of HylaFAX+, and was offering to do custom work for us at a very reasonable price provided we made that policy exception; otherwise, his rates were much, much higher. In addition to fixing bugs on a timeframe that matched with our release schedule (rather than the as-time-permits bugfix schedule for regular OSS users), he added integration points and hooks where we could connect to our custom, proprietary code. Everyone -- including our competition -- has access to those hooks, but we were the folks with the code (both in our product and in the glue) to take immediate and best advantage of them.

We even released some of our less proprietary related bits upstream to the community -- such as scriptage for using Inkscape as a just-in-time SVG renderer for much fancier cover pages than HylaFAX was able to handle on its own. Why? Because I wrote them in-house, and I wasn't going to be there (or working on faxing) forever; having those bits (which weren't exactly "secret sauce", just a little bit of extra flare) in the public consciousness meant that whoever ends up taking over the fax subsystem (of our much, much larger product) now that I'm gone will be able to pick up any third-party enhancements to that code which have been made upstream -- and maybe, just maybe, having that example available of what the enhancements we paid to add to HylaFAX+ can do will result in the HylaFAX.org branch deciding to pick them up, meaning that customers owning fax hardware only the iFax commercial variant of HylaFAX.org can interoperate with would be able to use that hardware with our product.

Paying for your time

[Anonymous Coward]

So, since the software itself is free, and all revenue is generated from service contracts and tech support, who pays for the time that went into the original software?

If the software was perfect, ie the original programmers had put enough time into it to completely debug the code, the user interface was simple and intuitive, no conflicts with other programs arose, etc...
    there would be no need for tech-support
    there would be no income from the software

So by giving away the software free, does that encourage buggy programming?

ABIL

Re:Paying for your time

[HappySmileMan]

One of the key points of FOSS from what I remember is that the users ARE the developers, that's incentive enough for them not to produce crap.

Of course MS programmers are users of Windows mostly, but I suppose when they're given deadlines and told exactly what to do by marketers who care more about looks and advertising than features they start to slip

Re:I laugh

[palegray.net]

Are you a programmer, or is there someone in your organization who is? Support doesn't necessarily mean your boss has to call some other company. You could learn the desired products well enough to provide basic support yourself (assuming your boss will pay you for the time spent doing so).

If your boss isn't interested in paying someone internally to learn the products well enough to support them, he/she probably isn't really interested in spending money outside the organization either, no matter what the license on the product might be.

With software support, you pay up front for the software, or pay for support after the sale, or both. Even in cases where you get support included with the package, you've gotta ask what level that support is. If your boss wants to be able to pick up a phone and "get answers the same day" it's gonna cost. If he wants solutions (i.e. fixes) the same day (or ever in many cases), that's gonna cost a lot more. No matter how you slice it, money will be spent.

For many applications, I'm convinced it makes a lot of sense to go with an open source solution that has a very active development community. Couple that with someone in your organization who understands the product, and reasonable support can be had for a lot less money than comparable commercial solutions.

Using the FREE model with music

[politicsapocalypse]

Last month I released Politics Apocalypse, a full length album using the creative commons licence attribution 3.0. This allows you to use the music however you please (including in commercial projects) so long as you give credit. Since last month we have had over 3000 album downloads. We accept donations, and we have a name-your-own-price CD; which is a unique concept where you can name your own price (starting at cost price) for a CD. We have had some orders and heaps of positive feedback. We have just added a new members area of the website. The members area contains new songs as they are finished, available to members long before they are released in album form to the rest of the world. Anyone who supports us by donating, ordering a CD (name-your-own-price) or submitting creative feedback are given an account. Hopefully this new addition will encourage donations, as so far the number of donations and CD orders are much lower than the number of album downloads and positive feedback. I realise that the created music is an infinite good, but it would be nice to get some support for the amount of time it takes to create. The statistics of downloads/orders etc are on the website. http://www.politicsapocalypse.com/

Re:I laugh

[jeiler]

Are you a programmer, or is there someone in your organization who is?

I am--but the catchphrase for our department is "We don't code. Ever."

It's not a situation that's at all logical, and he knows that taking an absolute stand against FOSS isn't rational. But this is the same guy who will cheerfully pay $450 per hour for a consultant to come in and do something that we can (and have) done.

On the plus side, he keeps the rest of the departments off our backs, and gives us the tools and the freedom to do what we have to do. And if we make a decision--provided that it's within the limits of "allowed" software--he will back us to the hilt. So it's not all bad.

Re:I laugh

[baffled]

Maybe I'm too proud, or maybe I'm too cheap - but I've never contacted support from either MS or Red Hat. Perhaps someone who has could detail their experiences here? I'm interested to see how they compare.

Straw man argument

[Seska]

Score, you know better than that and you shouldn't be trying to use inflammatory rhetoric. The fact that a price/demand curve tends to a 0 price in no way implies that it goes infinite price.

In some cases there is no pre-creation demand, because no-one knows they want it. Examples include music from unknown artists, fiction from unknown authors, etc. In other cases the demand is better (though not perfectly) known: a new Radiohead album, an Indiana Jones movie, or spaceflight for tourists.

"Free" vs "Unlimited" - how Craigslist is losing

[Animats]

The "free" model is breaking down for Craigslist. I just wrote an article about this on Techdirt. Craigslist allows free ads, but not unlimited free ads. The intent is to allow individuals to post a few ads a week. But for some advertisers, that's not enough.

Craigslist has all the usual defenses. They have limits on how much each account can post. They have a CAPTCHA. They have E-mail account validation. They check for excessive posting from one IP address. And they have a flagging system to catch any remaining spam.

All those defenses have been breached. There are power tools for Craiglist spammers. Commercially available power tools. Multiple accounts are created for ad spamming. OCR is used to break the CAPTCHA. Jiffy Gmail Creator ("Who Else Wants to Create Unlimited Gmail Accounts in Seconds Flat Without Breaking a Sweat?") is used to create vast numbers of GMail accounts to receive the account validation replies. IP proxies are used to get around per-IP limitations. Postings flagged off are automatically reposted.

Against these industrial strength automated posting tools, Craigslist is losing. Major areas of the site are over 90% spam, and angry users are deserting the site. Craigslist is trying phone verification, but even that has been broken. (Read the Techdirt article and the Black Hat SEO forums for how that's done.)

Craigslist is being hit because it's the biggest free ad site, but attack tools are available for other ad and social networking sites. You can read about it on the "Black Hat SEO" forums.

Re:I laugh

[Anonymous Coward]

My company recently paid something around $300 for resolving our problem with MS Server 2003. The call did resolve the issue, BTW.

We also paid $25,000 to LinuxWorks for 5 seats/1 year support (we had 2 seats only but LW did not have 2 seats packages). The support itself was not good (they have used outsourced clueless developers from India). At the end, we resolved all our problems ourselves.

Re:Glad people are discussing scarcity

[samkass]

So what are you proposing, state sponsorship of all creative works? Everyone contribute what they can and take what they need?

The output of creative folks is NOT a non-scarce good... it's actually extremely scarce. And if there isn't a better model than Copyright (and no one seems to have implemented one yet), then when you pay for the reproductions you're funding the original work.

Re:I laugh

[TheVelvetFlamebait]

They stop at that point because they relize that the free software is better than the commercial software

I'll just stop you there. Free software is generally very good, but the top spot of most (all?) software fields is usually occupied by a piece of (often expensive) proprietary software. For instance, open office just isn't quite as good as Microsoft Office, the GIMP isn't as good as Photoshop, Rosegarden isn't as good as finale, etc. Still, for zero dollars down, they have my support (even if they sometimes don't have the support of professionals in the field).

Re:I laugh

[killjoe]

>Because on any other issue besides FOSS,

The issue is not FOSS. The issue is your bosses ability to make sound and rational decisions.

>He's been CIO of where I work for over 20 years, and not shot himself in the foot yet.

Except this one time. You yourself admit the decision is irrational.

Maybe his mind is going. Maybe he has brain tumor. Maybe he is ill in some other way.

Either way he has lost the ability to make rational decisions. He is making decisions based on ignorance and superstition.

In short he was become a zealot. He has ruled out an entire category of solutions simply because of some ideological belief.

Trust me this is not going to end up well for anybody involved with the company.

People like that should not be put in position of responsibility.

Re:Need to look at overall compensation

[westlake]

In terms of media specifically...well that's all disposable income anyways. People only spend money on movie/music when have spare change to spend on entertainment.

In the Depression of the 1930s and throughout World War Two about the only relief you had from work and worry was radio and the movies. Travel restrictions. Rationing of every kind.

Entertainment becomes more important not less when people are under stress.

Re:I laugh

[Opportunist]

I can't vouch for Red Hat, but here's a bit of my experience with MS support.

My question: I plan to ackquire VS 2008. Could you please inform me about the differences between the various packages you offer, so I could pick the license(s) that suit our needs best?

One would assume that it, being a question dealing with making a sale, first of all has some sort of priority and second, should be part of a standard info. I was actually surprised that I couldn't find the info online, but maybe I just didn't manage to find it.

The answer was that the service rep doesn't know and he will escalate the question. After that, a week of silence. After that week, I got an email with a link to a page giving me admittedly exactly the information I wanted.

Asking how I could have found this page, so I don't have to bother their support the next time I need information about different software bundles, I was informed that there is no link from the main or search page that would have enabled me to find it.