Succeeding in Your Business: It’s time to reconsider ‘free’ services

By Cliff Ennico

Recently I did something very retro.

While responding to a (paper) flyer in my mailbox, I visited a local library’s annual book sale. You know the one where you can pick up yesterday’s best- sellers for $1 or $2 each (half-price on the second day).

I have amassed quite a lot of books over the years. I probably have 3,000 or 4,000 of them in my basement.

As I lugged my three full shopping bags of new arrivals down to the basement to join their brethren, an interesting thought occurred to me: Virtually all of the books in my basement were acquired at library book sales such as the one I attended recently. Hardly a single one was bought at a bookstore, on Amazon or anywhere else where I would have to pay anything close to the cover price.

Don’t get me wrong. I buy plenty of books from Barnes & Noble, Amazon and other booksellers. It’s just that I read those shortly after I buy them, so they don’t have a chance to accumulate in my basement. I’m not reading the ones I bought at library book sales, for which I spent a lot less money.

Maybe I feel buyer’s remorse for paying 80 percent of the cover price for a book I know I will find at a library book sale the next year for two bucks. Maybe I feel guilty about buying a book at a “real” bookseller and then never reading the thing.

Or maybe — just maybe — it’s a perception of value on my part: A book I paid $30 for is actually worth more than a book I paid $2 for, so it deserves to be read immediately, illogical as that sounds.

This brings me to the subject of online software applications and apps.

I’m currently working with several clients who are developing software as a service and mobile applications. The applications are all over the place (one client offered to develop a Cliff Ennico “app” in lieu of paying a fee, but I turned them down), but all of these clients have one thing in common: Their business plans do not require the customer to pay a fee for downloading the app.

The idea is a simple one: By giving the product away for free, they will attract lots of customers. By attracting lots of customers, they will attract advertisers who will pay to reach those customers. They will also attract market research firms who will pay tons of money to access data about those customers.

I call this the mass media model because it originated in the 1920s with radio (access to the airwaves is free) and became fully developed in the 1950s with the advent of television and other forms of mass communications.

The problem with this model, however, is that it assumes you will be able to generate enough advertising and data purchases to cover the cost of developing the app, operating expenses, payroll and so forth. There are a number of reasons why today’s software developers should consider charging a modest sum, or perhaps a subscription fee, for their products, and they are increasingly doing so (how many online articles have you tried to download without a “paywall” kicking in?). Here are three arguments for doing so:

No. 1: With millions of apps available for iPhone and Android phones, the number of advertisers with sufficient resources to advertise on all, or even most of them, is dwindling by the day. Only a handful are getting financial support.

No. 2: The federal government is cracking down — hard — on Internet companies that sell their customers’ data in violation of their privacy policies, and users are becoming more concerned about where their personal information is going, making it tougher for developers to generate revenue from data sales.

No. 3: Once people are accustomed to getting your stuff for “free,” you will have a tough time charging money for it later on (millions of people carry their entire lives onboard airplanes and risk their fellow passengers’ physical safety rather than pay baggage fees). How do you feel when your local advertising-supported weekly newspaper wants you to pay to download more than two or three articles from their online edition?

When you pay a price for something, you tend to treat it with more respect and take it more seriously. Maybe it’s just me, but I find the consumer reviews on AngiesList (www.angi.com), which charges users for posting reviews, better written, more detailed and more helpful than those on either Yelp or Amazon, which don’t charge reviewers. If you’re binge-drinking on a Saturday night and are tempted to post a negative review of the bar that threw you out the door, you will think twice about doing so if you are required to pay a fee for the privilege.

Instead of a “mass media” model, software developers should be looking at a “newspaper” or “magazine” model: Charge the customer a small, recurring fee that will cover your basic operating expenses, and then make your profit on advertising, data sales and so forth. By doing so, they will not only generate a more reliable revenue stream, but they will be creating a perception of value that will give them a competitive advantage in the long run.

Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series “Money Hunt.”

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