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Should Everything Be Free?
As we sell more and more iPhone Apps, we collect more and more feedback from both our Customers and people who think that everything on the iPhone should be free. At first we were dismayed by the prospect that an entire generation of people (many iPhone users) actually paid for the mobile phone but now expect software developers to design, code, test and launch applications for free given the efforts involved, the costs for the hardware and the coding tools etc. We initially wondered how we could possibly make it happen. Could software be offered for free?
On a bustling corner of Sao Paulo’s quita district, street vendors pitch the latest “tecnobrega” CDs, including a few by a hot band called Banda Calypso. Like CDs from most street vendors, these did not come from a record label. But neither are they illicit. They came directly from the band. Calypso distributes masters of its CDs and CD liner art to street vendor networks in towns where they plan to tour, with full agreement that the vendors will copy the CDs, sell them, and keep all the money. That’s OK, because selling discs isn’t Calypso’s main source of income. The band is really in the performance business – and business is good. Traveling from town to town this way, preceded by a wave of supercheap CDs, Calypso has filled its shows and paid for a private jet. Not a bad way to offer free software we thought.
Back at ground zero, our developers were asking for their paychecks and our freelancers were requiring payment for Apps that had just been accepted for launch. We can’t blame them for wanting money after all, they need to eat too but, this same generation of gotta-haves want to get paid for their time and yet expect most things that they need to be free – someone is going to have to pay for all this free stuff if you read your college ECON 101 textbook it’s likely to define economics as “the social science of choice under scarcity.” The entire field is built on studying trade-offs and how they’re made. Milton Friedman himself reminded us time and time again that “there’s no such thing as a free lunch. But Friedman was wrong in two ways. First, a free lunch doesn’t necessarily mean the food is being given away or that you’ll pay for it later, it could just mean that someone else is picking up the tab. Money is not the only scarcity in the world today… the other items include time and reputation. if you build on reputation, you gain respect especially in the troughs of a given niche market. If you increase attention you can actually build a business as you convert from reputation to traffic and traffic as many of us in this digital age know, can be converted into cash. There is, presumably, a limited supply of reputation and attention in the world at any point in time. These are the new scarcities – and the world of free exists mostly to acquire these valuable assets for the sake of a business model to be identified later. This ‘free mentality’ shifts the economy from a focus on only that which can be quantified in Euros, Dollars and cents to a more realistic accounting of all the things we truly value today.
How a company presents an offer for a product today differs in many ways from the past in that the price of each individual component is often determined by using psychology, not cost. Your mobile phone company may not make money on your monthly minutes – it keeps that fee low because it knows that will be the first thing you will compare when picking a carrier – thus another component, your data volume and your monthly voice mail fee is pure profit to the carrier. So you see ads for free phones but I have yet to encounter free calling plans.
You get the pipes for free but the water passing through those pipes is expensive. So, what are we to do about our dilemma? Many of our target prospects want something for free and yet our developers need to eat. If we were to offer a free ‘lite’ version, then we would encounter higher dev costs and support costs but the idea has crossed our mind.
Wait, there is another way… How about building real value into your offering so that people won’t mind spending some spare change if an App helps them do something that they wanted to do before but were not able. If an App were to focus on leveraging those scarce resources that we listed a few paragraphs above such as helping a user to save time, gain respect or save money – the App would pay for itself and that, in essence, is currently our favorite model of ‘free’.