Why I would pay when there's a free alternative

A friend of mine posted yesterday on How to Compete With Free. I would like to address the same topic, but from the perspective of a consumer, as opposed to the perspective of a distributor. After all, to understand how to distribute, you need to first understand how the consumer thinks.

When I look at options for a service or product, I will start with the free options. However, I tend to approach it with a cynical twist, that is, you get what you pay for. So my first reviews are looking for flaws, trying to figure out what the catch is, and why it’s free. Once I have determined that the free alternatives won’t work, I move up the price line, until I find a solution that will work.

What this means is that if you are trying to get me to use your product, and to pay for your service, you have to meet one of two criteria:

  1. Your product is free, and does what I need
  2. Your product is cheap, and does what I need and there are no free alternatives.

Unfortunately, both these models mean you won’t make very much money from me. However, you can take this approach, and apply Craig’s List approach from Jeremy’s article, in which you start charging more for the advanced features.

Like many people I know, once I start using your system, I will continue to use your system if it can meet my needs, even if it costs more than an alternative. Of course, eventually you will hit an upper limit, where if you charge too much for the product or service, I will go elsewhere. That’s why you work with marketing people to figure out what that number is. But if you design your sales model based on giving away or charging a minimal amount for a product that does most of what most users want, and then charge extra to use the advanced features, you will be able to compete with the free alternatives. After all, your product is mostly free too.

  • http://www.lichtman.ca/ Jeremy

    I’m glad other people are wrestling with this topic too.

    Without some kind of underlying business model, the software development community is in trouble – the only things left that people will pay for are highly customized or extremely high end (i.e. stuff for insurance companies, or businesses that have unique ways of operating). That is a substantial market, but not big enough for all of the developers out there!

    The consumer is ultimately going to “pay” as well, as the quality and availability of software will drop off unless somebody somewhere is making money from that market.

  • http://www.lichtman.ca Jeremy

    I’m glad other people are wrestling with this topic too.

    Without some kind of underlying business model, the software development community is in trouble – the only things left that people will pay for are highly customized or extremely high end (i.e. stuff for insurance companies, or businesses that have unique ways of operating). That is a substantial market, but not big enough for all of the developers out there!

    The consumer is ultimately going to “pay” as well, as the quality and availability of software will drop off unless somebody somewhere is making money from that market.