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I loved this article, but after thinking about it for a bit I realize that there is an argument for going free. Two pretty strong ones, in fact. 1) If you want

I loved this article, but after thinking about it for a bit I realize that there is an argument for going free. Two pretty strong ones, in fact. 1) If you want to get acquired - and we're talking about a big acquisition here - it would do to go free so you manage to score a big-enough user base to get noticed. And so the bigger company is interested in acquiring you not only for your technology, but also for your users. (That said, acquisition may be a risky bet.) 2) Going free also makes sense if you want total market dominance. In which case, free is really the only way to go. The writer is speaking from the POV of a micropreneur, and it makes sense for him to retract his free plan (in fact, it makes sense for 37signals/the 37signals model to do so too). But if you're in the position of being the next Facebook, going free and dominating the market is really the best thing to do. (Or Youtube, or Google, or Flickr). You find lots of users, lock out the competition, and then you can figure out how to monetize. Which only goes to show that there are all kinds of businesses out there, and the advice you read on the net really should be done through the context of your particular business and/or market.

revorad 16y ago
Going free also makes sense if you want total market dominance. In which case, free is really the only way to go. No it's not. The other way is to make the best damn product in the market. I hate to give cliched examples, but since we are talking market dominance, see Windows, Adsense and iPod.
- damoncali 16y ago
  I can see iPod and Adsense, but Windows? Windows won for very, very different reasons. When Windows first appeared, it was far from the best product on the market. It won because it was already everywhere (because of DOS). Microsoft practically invented the "give it away to ensure market dominance" game (Ok, slight hyperbole there). It took the court system to slow them down.
  - blacksmythe 16y ago
    I agree. I think it would be almost impossible to introduce a new, non-free OS now since from day 1 it would have to be not only better than Linux and BSD, but significantly better.
  - gvb 16y ago
    Agreed. From the point of view of the customer, Windows is free since it is bundled with their computer and cannot be unbundled. (There now are some chinks in that bundling armor, but not much.)
  - revorad 16y ago
    What consumer OS on affordable computers (that leaves Macs out) was/is better than Windows? It took the court system to slow them down. That was not for their dominant desktop OS, it was for using their monopoly to push IE and server products. You can call out Microsoft on dodgy anti-competitive behaviour in some respects, but you cannot take away credit for building the solid product that is Windows. Heck, even now after goofing up with Vista, they are back with Windows 7.
    - daleharvey 16y ago
      I much much much prefer desktop linux, I would hesitate to call windows decent, let alone by far the best. Yet I have still found it as much as impossible to buy a computer without windows preinstalled.
      - revorad 16y ago
        I prefer and use linux too, but the typical HN user doesn't represent the consumer market.
      - gnaritas 16y ago
        > I much much much prefer desktop linux So do I, but that Linux didn't exist when Windows became dominant; it came much later.
- wensing 16y ago
  Market dominance goes to the best-executed whole product, not the best generic product in isolation of market dynamics. Making the best product is only half the equation. Startups also need a market strategy that works.
- lolhn 16y ago
  Product doesn't trump all. It's the exception, not the rule, that the best product wins the war. Besides... what is the best product? Is it the most featureful? The simplest? The fastest? The cheapest? The most usable? The most beautiful? The most enviable? The most emotionally satisfying? And even if you know what's best... if people aren't aware of it's existence, or if there are other barriers to them trying it, they might well never accept it. I used to think like you. Then I made some great products. I had much better success when I started thinking about the whole picture, and stopped zeroing in on the product.
- raquo 16y ago
  Windows was free (preinstalled) for end users since at least 3.0 IIRC. Adsense is essentially free for publishers. Both it and Adsense have huge positive network effects. Not to say that they weren't best products on the market when they got traction, but still.
  - revorad 16y ago
    Adsense is essentially free for publishers. That's a strange way to look at it. Publishers are selling space to Google for a cut of the Adsense revenue. Google is selling contextual ads within those spaces to advertisers. What's free in that?
- sourc3 16y ago
  I really think there is a missing piece of context here. If you are creating the next social application charging for your application would be counterintuitive since you are banking on the number of users. On the other hand if you have an application that actually makes money for someone or saves money (in other words translates to direct dollar amount) you might be better off charging as long as your user base perceives the value they get out of your application as more than what they pay for it. I really think that me-too-free app mentality has to change. Startup founders (especially micro ISVs) need to understand the fact that coming up with a business model is the core of the business not an afterthought.
- shadowsun7 16y ago
  Not always true, though. History is littered with examples of products that gained traction not because they were better, but because they were free. (See: BIND vs Jeeves, Stanford's Unix vs Berkeley's Unix, Minix vs Linux, Apache vs Microsoft/Netscape) At one point in all these product's lives they were lousier and smaller as compared to their competitors. But they won out because the low barrier to adoption (read: free) drove usage, and from usage, more improvements.
  - revorad 16y ago
    Thanks for pointing those out, I hadn't thought of them and can perhaps be accused of survivorship bias. I don't know about the first two examples but isn't Linux actually better than Minix and Apache certainly better than Microsoft? In any case, this is a bit of an unfair comparison because these are examples of open source vs proprietary, not product quality primarily. In the context of the OP's blog post, we are talking about winning in terms of building a profitable business, for which I believe building a good product and selling it is a better strategy than getting popular by giving away a crap product for free. The gist of the matter is that you should be clear what you are selling: * a product * advertising space/lead generation (if you are free) * yourself (acquisition) I see most web startups are going for the second and third options, but it seems it is mostly out of fear and the status quo, not careful consideration of the pros and cons.
    - shadowsun7 16y ago
      > I don't know about the first two examples but isn't Linux actually better than Minix and Apache certainly better than Microsoft? When they first started out, both were lousier, scrappy, free products. > In any case, this is a bit of an unfair comparison because these are examples of open source vs proprietary, not product quality primarily. There is nothing unfair about this comparison. Releasing free products and making money on other things has always been a viable way to compete against bigger, more established players. See: http://www.joelonsoftware.com/articles/fog0000000056.html http://www.joelonsoftware.com/articles/fog0000000056.html
      - 16y ago
- njharman 16y ago
  Cheap(er) almost always beats better/best when the market is large. Walmart, fast food, webbrowsers. The main way a less cheap product wins a mass market is through massive advertising. Specialized and niche markets are different. I'm not sure what your examples where suppose to illustrate. Both Windows and Adsence rule because of the (practical) monopoly positions of their creators. iPod's only one that may have dominated for being the better product but If google started giving away crappy media players they would quickly out dominate iPods.
startuprules 16y ago
World of Warcraft dominates the MMORPG market. Why? they created the best damn product. Go free to get lots of broke users if you want to help scammers serve ads to those users.
- steveklabnik 16y ago
  WoW also offers a lot of free months to players. Sign up a friend, both of you get free months. I almost said "and WoW isn't the best damn product," but that depends on your definition of 'best.' It almost mirrors the Mac/Windows thing. Connoisseurs tend to scoff their noses, yet they just keep on selling... WoW is a mediocre product executed _perfectly_.
  - jdc 16y ago
    http://www.metacritic.com/search/game/world+of+warcraft/results?sort=score http://www.metacritic.com/search/game/world+of+warcraft/resu... Define mediocre.
    - steveklabnik 16y ago
      Maybe 'not innovative' would make more sense. WoW is a great game, and I have a ... long and very personal history with it. But it's a Blizzard game; their MO is to make the most average game possible, but make it incredibly polished. Many of my fondest memories are of Blizzard games, but (as of late) they're rarely innovative. WoW is the gold standard of fantasy MMOs. It just doesn't do anything new or interesting; it only does a small set of things, but does them very, very well.
      - chc 16y ago
        So, basically, Blizzard is the 37signals of game companies?
        steveklabnik 16y ago
        I would agree with that assertion.
wolfrom 16y ago
What I take from the article and from your comments is that Freemium is a great idea for any product that relies on network effects, either to create a more useful product or to provide a strong exit. But with any other type of product, it would make sense to put the Freemium aside. It's probably easier to try paid only (with or without trials) first, rather than starting with Freemium and dealing with the fallout of cutting off free users later on.
- barmstrong 16y ago
  Yep - you hit on the key difference: go freemium if your business needs network effects. Marketplaces, social networks, ebay, etc - basically anything where the site becomes more valuable the more people use it.
atlei 16y ago
Good point on 2) total market dominance ! I wonder if Twitter would have had a chance at all if they required payment for participating (even as little as $5 a year would probably be too much for it to take off) ?

revorad 16y ago

Going free also makes sense if you want total market dominance. In which case, free is really the only way to go. No it's not. The other way is to make the best damn product in the market. I hate to give cliched examples, but since we are talking market dominance, see Windows, Adsense and iPod.

damoncali 16y ago
I can see iPod and Adsense, but Windows? Windows won for very, very different reasons. When Windows first appeared, it was far from the best product on the market. It won because it was already everywhere (because of DOS). Microsoft practically invented the "give it away to ensure market dominance" game (Ok, slight hyperbole there). It took the court system to slow them down.
- blacksmythe 16y ago
  I agree. I think it would be almost impossible to introduce a new, non-free OS now since from day 1 it would have to be not only better than Linux and BSD, but significantly better.
- gvb 16y ago
  Agreed. From the point of view of the customer, Windows is free since it is bundled with their computer and cannot be unbundled. (There now are some chinks in that bundling armor, but not much.)
- revorad 16y ago
  What consumer OS on affordable computers (that leaves Macs out) was/is better than Windows? It took the court system to slow them down. That was not for their dominant desktop OS, it was for using their monopoly to push IE and server products. You can call out Microsoft on dodgy anti-competitive behaviour in some respects, but you cannot take away credit for building the solid product that is Windows. Heck, even now after goofing up with Vista, they are back with Windows 7.
  - daleharvey 16y ago
    I much much much prefer desktop linux, I would hesitate to call windows decent, let alone by far the best. Yet I have still found it as much as impossible to buy a computer without windows preinstalled.
    - revorad 16y ago
      I prefer and use linux too, but the typical HN user doesn't represent the consumer market.
    - gnaritas 16y ago
      > I much much much prefer desktop linux So do I, but that Linux didn't exist when Windows became dominant; it came much later.
wensing 16y ago
Market dominance goes to the best-executed whole product, not the best generic product in isolation of market dynamics. Making the best product is only half the equation. Startups also need a market strategy that works.
lolhn 16y ago
Product doesn't trump all. It's the exception, not the rule, that the best product wins the war. Besides... what is the best product? Is it the most featureful? The simplest? The fastest? The cheapest? The most usable? The most beautiful? The most enviable? The most emotionally satisfying? And even if you know what's best... if people aren't aware of it's existence, or if there are other barriers to them trying it, they might well never accept it. I used to think like you. Then I made some great products. I had much better success when I started thinking about the whole picture, and stopped zeroing in on the product.
raquo 16y ago
Windows was free (preinstalled) for end users since at least 3.0 IIRC. Adsense is essentially free for publishers. Both it and Adsense have huge positive network effects. Not to say that they weren't best products on the market when they got traction, but still.
- revorad 16y ago
  Adsense is essentially free for publishers. That's a strange way to look at it. Publishers are selling space to Google for a cut of the Adsense revenue. Google is selling contextual ads within those spaces to advertisers. What's free in that?
sourc3 16y ago
I really think there is a missing piece of context here. If you are creating the next social application charging for your application would be counterintuitive since you are banking on the number of users. On the other hand if you have an application that actually makes money for someone or saves money (in other words translates to direct dollar amount) you might be better off charging as long as your user base perceives the value they get out of your application as more than what they pay for it. I really think that me-too-free app mentality has to change. Startup founders (especially micro ISVs) need to understand the fact that coming up with a business model is the core of the business not an afterthought.
shadowsun7 16y ago
Not always true, though. History is littered with examples of products that gained traction not because they were better, but because they were free. (See: BIND vs Jeeves, Stanford's Unix vs Berkeley's Unix, Minix vs Linux, Apache vs Microsoft/Netscape) At one point in all these product's lives they were lousier and smaller as compared to their competitors. But they won out because the low barrier to adoption (read: free) drove usage, and from usage, more improvements.
- revorad 16y ago
  Thanks for pointing those out, I hadn't thought of them and can perhaps be accused of survivorship bias. I don't know about the first two examples but isn't Linux actually better than Minix and Apache certainly better than Microsoft? In any case, this is a bit of an unfair comparison because these are examples of open source vs proprietary, not product quality primarily. In the context of the OP's blog post, we are talking about winning in terms of building a profitable business, for which I believe building a good product and selling it is a better strategy than getting popular by giving away a crap product for free. The gist of the matter is that you should be clear what you are selling: * a product * advertising space/lead generation (if you are free) * yourself (acquisition) I see most web startups are going for the second and third options, but it seems it is mostly out of fear and the status quo, not careful consideration of the pros and cons.
  - shadowsun7 16y ago
    > I don't know about the first two examples but isn't Linux actually better than Minix and Apache certainly better than Microsoft? When they first started out, both were lousier, scrappy, free products. > In any case, this is a bit of an unfair comparison because these are examples of open source vs proprietary, not product quality primarily. There is nothing unfair about this comparison. Releasing free products and making money on other things has always been a viable way to compete against bigger, more established players. See: http://www.joelonsoftware.com/articles/fog0000000056.html http://www.joelonsoftware.com/articles/fog0000000056.html
    - 16y ago
njharman 16y ago
Cheap(er) almost always beats better/best when the market is large. Walmart, fast food, webbrowsers. The main way a less cheap product wins a mass market is through massive advertising. Specialized and niche markets are different. I'm not sure what your examples where suppose to illustrate. Both Windows and Adsence rule because of the (practical) monopoly positions of their creators. iPod's only one that may have dominated for being the better product but If google started giving away crappy media players they would quickly out dominate iPods.

startuprules 16y ago

World of Warcraft dominates the MMORPG market. Why? they created the best damn product. Go free to get lots of broke users if you want to help scammers serve ads to those users.

steveklabnik 16y ago
WoW also offers a lot of free months to players. Sign up a friend, both of you get free months. I almost said "and WoW isn't the best damn product," but that depends on your definition of 'best.' It almost mirrors the Mac/Windows thing. Connoisseurs tend to scoff their noses, yet they just keep on selling... WoW is a mediocre product executed _perfectly_.
- jdc 16y ago
  http://www.metacritic.com/search/game/world+of+warcraft/results?sort=score http://www.metacritic.com/search/game/world+of+warcraft/resu... Define mediocre.
  - steveklabnik 16y ago
    Maybe 'not innovative' would make more sense. WoW is a great game, and I have a ... long and very personal history with it. But it's a Blizzard game; their MO is to make the most average game possible, but make it incredibly polished. Many of my fondest memories are of Blizzard games, but (as of late) they're rarely innovative. WoW is the gold standard of fantasy MMOs. It just doesn't do anything new or interesting; it only does a small set of things, but does them very, very well.
    - chc 16y ago
      So, basically, Blizzard is the 37signals of game companies?
      - steveklabnik 16y ago
        I would agree with that assertion.

wolfrom 16y ago

What I take from the article and from your comments is that Freemium is a great idea for any product that relies on network effects, either to create a more useful product or to provide a strong exit. But with any other type of product, it would make sense to put the Freemium aside. It's probably easier to try paid only (with or without trials) first, rather than starting with Freemium and dealing with the fallout of cutting off free users later on.

barmstrong 16y ago
Yep - you hit on the key difference: go freemium if your business needs network effects. Marketplaces, social networks, ebay, etc - basically anything where the site becomes more valuable the more people use it.

atlei 16y ago

Good point on 2) total market dominance ! I wonder if Twitter would have had a chance at all if they required payment for participating (even as little as $5 a year would probably be too much for it to take off) ?