Ever since I had my first job, I have wondered about the concept of “Free” in corporate world. And many years later, I am pretty convinced free is usually a bad strategy for all parties. This is strictly a rant on my personal views – nothing official about it, and do not represent the views of my present and past employers .
Nothing is really free
That took me some time to realize – absolutely nothing is really free. Someone has to pick up the tab always. Since I have worked in the consulting business most of my life – let me use that as backdrop to explain . This is true for big and small consulting companies I have worked for.
Customers do pay a pretty penny for consulting – and rightfully think that since they are giving so much business for the consulting vendor, they should get some things for free. This is usually in the form of proof of concept work. And most of the time – Vendors do agree to throw in free POCs. Vendors do not do this out of kindness – since they typically do this only if there is upside down the line for them via more business. The POC starts – customer does not always go all-in for these projects , given they are not putting in direct money on the table. And eventually the project finishes with no one happy and no decisions made . The Vendor does not exactly lose here – they will make it up in next project, either at that customer or at another customer. Those vendors who do not have multiple projects and clients might actually lose serious money in these POCs, and hence they might not do it a second time either. Whichever way you look at it – no body is moving a good step forward in this picture.
Even when something is given away for free, it does not get used much
If you walk the show floor at any trade show, you will get a lot of free stuff – from coffee mugs to iPads. I have seen software companies give iPads to their prospects and clients preloaded with presentations etc, that usually end up in a teenager’s back pack in few days, usually without the presentation ever being looked at. And no prizes for guessing who is paying for those iPads 🙂
Then there is the case of vendor charging a maintenance fees for software, and using part or all of that fees for “free” new functionality added to already sold software. Customers might genuinely like to see all kinds of things to come out of this arrangement for free – new business processes, mobility, BI etc. The hard part is – it is next to impossible to draw a clean line on what should be free.
If you look at the adoption of the new functionality provided for free , very rarely do you see big adoption. But if you look in further – there might be other reasons for this , like cost of hardware, testing, change management etc. So on one hand, the vendor uses a lot of money for making stuff, and on other hand customer has no way of using it – due to lack of awareness, lack of resources or lack of interest. The take away here is again that Free did not work as expected.
It can of course be argued that in a multi-tenant SaaS model, customers might use free stuff more often. I seriously doubt it. Example : if you never had parallel ledgers till today, and now your cloud vendor gave it to you for free – will you implement it ? Many customers will not – either because they don’t care, or because it needs more change management , SI work etc (probably less than on premises world, but still usually enough to help inertia rule). And it is not as if cloud does not have lock in – if you have any doubts, look at the SEC filings of cloud companies on internet.
Should Vendors charge for a different UI or for mobile versions of existing applications ?
UIs will change over time – as technology changes (hardware and software advances, consumerization of IT and all that) . Should Vendors charge for that? Will making it free increase adoption and make customers happy? I don’t know the answer – but my (of course biased) answer is that it is fair to charge for this. Here is my rationale – when customers don’t like UIs, they will find work arounds. Vast number of screens delivered by vendors are replaced by loads from spreadsheets . I know a company where the financial analyst loads JV entries twice a day by putting it in an excel sheet and putting it in a sharepoint drive, System does the rest and the analyst is happy and productive. I have asked this guy personally many times if a different UI is a better solution, and he consistently likes to stick with his excel in sharepoint approach. I know a hundred other examples like this where people refuse to move to better UI for fear of change. Giving a free UI for these cases just would be a bad investment.
Mobile is a harder nut to crack. Vendors with a limited footprint – like just HR or just CRM as their offering, might throw it in for free and build it into their price case. I think that is the right thing to do for them since it makes business sense. However, for vendors who sell many different things – they might not have a good way to do this across their portfolio. For these cases – All I can say is “pick your battles” . They are probably better off selling packages mobile applications for best usecases. Or they might sell (or partner with) some development platform that helps customers build their own. Or maybe leave it to the partner ecosystem to bridge that gap. It might also make sense to throw in a few things for free on mobility front if it makes sense for competitive reasons.
But if you charge – what is fair and what is not? I have a simple POV on that – the price to charge is the maximum $$ that will not stand in the way of adoption. Price is driven by market – if you over charge, customers won’t buy and use it. So start with what you think is fair, adjust as you go – with a good tradeoff between adoption and your financial KPIs like revenue and margin.
What about consumer side of the house?
You would think that consumers are happy with all the free stuff they get – like facebook, free uploads in flickr and so on. Nothing is really free there either – you still pay in terms of sacrificing privacy, suffering through advertisements (or paying to avoid the advertisement). And of course you use the same facebook to complain of their free service 🙂
So in short (well, I guess this was not very short – sorry) – I doubt “free” really works anywhere. There is no free lunch – I have accepted that and made peace with it. What do you think ?
And Vijay Says... 
VIjay, I revisited this blog today as I wanted to catch up again on your points in this interesting blog.Spent more time reading visitor comments and your wonderful answers.Thanks for sharing all the wonderful thoughts!!!
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Good view!! But if you really want to attract the person(who is stick into the old excel not accepting the new fascinating UI), to your business product, only option is FREE TRIAL.. You couldnt 100% admit that because of fear of change they reluctant to move forward, there are lots of other reason, major reason would be wrong perception of costing and quality of the new product. To clarify all those things we not only need marketing and also needs to supply some samples as FREE.
I believe that, instead of providing entire product as free for life time, have a reason, send out some of your product sample to the home at FREE OF COST. if your product really brings benefit, sure all different mind set person accept the product and move on. Even I never buy any software without trial version satisfied, similar idea most of them follow for buying books, some time even on consumer goods 🙂
But if someone giving some thing as totally free, the cost of the product already adjusted in other aspects 🙂
Thanks for sharing.
Regards.
Jansi
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Mostly agree with you here Vijay. In general, there’s a simple rule these days: “If you’re paying for the product, then you are the product.” This holds true for a lot of the social media platforms such as Facebook etc. Add Flickr to the bunch now…
I have to admit that I was overly excited when I heard about Flickr offering 1TB for all users for free. Should have read the fine print I guess. But it was late and I thought that Marissa Mayer gets it… well, lessons learned – never tweet before doing your homework!
Personally I started to pay for services a long time ago to avoid ads etc. Barely watch TV anymore, but buy the stuff that I wan’t to watch w/o adds.
Yet, the saying “there’s no free lunch” seems to portrait a very negative view on the world and hence I dislike it. I sure had free lunchs. Sure, somebody has to pay the bill, yet in rare occasions people pay for something just to see other people happy – but it’s a dying breed for sure.
As such, it’s good advice to wonder about the “hidden agenda” if somebody/some company is offering something for free. What’s their motivation?
An interesting aspect in that context is open source. The fact that it is open, easily accessible and comes with great documentation and community support lead to mass adoption (due to the low entry barrier.) Yet, there’s definitely a sustainable business model behind it! The rational here is that with the mass adoption there will be the need for experts and paid consulting and support services. For me, this is a great business model. Give stuff out for free to push adoption and as soon as other people make money there’s a chance they will pay you for what you offered as they now depend on your services/products. For me this seems to be a fair strategy…
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Open source is an interesting angle for sure in this discussion . Open source is not free – still takes effort, computers and other infra to create and sustain . And people working on it still have families to feed . So while users may not directly pay – unless they donate – someone is paying for sure . But there surely is a viable business model behind it in a pay it forward fashion
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This is a spectacular post. So often in the enterprise apps realm we look to consumer sw companies as a model for things we lack. For sure there are many things to learn from the consumer Internet (eg usability) but business model is not one of them. I like the saying “if you are not paying for the product, you are the product.” Even w the consumer Internet, nothing is free.
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John, the point here isn’t to mimic the consumer model – it’s simply a question of customer value and customer expectations in the enterprise space. If I’m paying you 18-20% annually for support and maintenance, and you come up with a “better mousetrap” to make a business process I’ve paid licenses for a bit easier to execute, I think I can have a reasonable expectation that this would be “no extra charge” to me and available as a free upgrade provided that I’m on an active maintenance agreement.
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Completely agree, John . The tendency to imitate consumer world blindly has its pitfalls – but not everyone realizes right away I guess .
Several things we do for short term competitive advantage have a habit of biting our behinds in long term 🙂
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Nice discussion – but come on. When an enterprise software vendor makes something ‘free’ – like e.g. Workday does their mobile offerings – then it’s not free in terms of cost. But it means that the vendor is shouldering it – because it’s key to create value for customers, or the vendor does not think it’s good enough for a separate license… whatever. But the key to me is – value creation for customers.
So if SAP made Fiori free on the license side – it would create value and make would make the next maintenance conversation an easier one for SAP. Decisions, decisions…
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Well said, Holger. It’s about creating customer value and helping them realize value in the money they’re already paying for maintenance!
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Can’t comment on SAP and I know very little of Workday .
However , I do think it would be naive to assume that a vendor would give something really for free . Newer vendors always have some advantages in dealing with current customer expectations from a “less baggage to carry” point of view . When a new SaaS vendor creates a pricing strategy, I am sure they roll in costs for UI etc in that. I think it is a smart strategy to make it “seemingly” free – and definitely can make competition look outdated .
However – all that glitters is not gold either . On prem vendors take a lot of heat for locking in customers . Guess what – cloud vendors do it too all the time. However , when cloud is spoken about – people conveniently say cloud has no lock in. Everything comes with strings attached – we just don’t see all strings upfront 🙂
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All I can say is you get what you pay for =)
I don’t disagree with your blog Vijay. IMHO, I find it simpler to charge or pay a perpetual fee that provides “renewable value” by making solutions easier to digest and problems simpler to solve.
Comping from industry, I’d like my product companies to listen to my requests, keep giving me product enhancements, and tell me whats in store for me (emphatically my company). If I couldn’t solve a problem or needed to bake-off between a competitor, I’d like my vendors to do a free POC for me. I already made the investment in selecting the products, performing due diligence, entrusting vendors with my information and getting my company to listen i.e. come to the table.
Now that I’m back in consulting, I believe we have an opportunity to conduct POCs very differently and cost effectively.
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I don’t honestly believe anyone thinks of “free” in the pure sense of the word when it comes to ERP.
The issue arises that customers buy functionality from a vendor and pay maintenance for updates and product improvements based on that investment. If the vendor releases a new UI for the same functionality runnning against the same system its not surprising that customers query being asked to pay again. e.g. With SAP HR self services a customer may have the ESS/MSS licenses. Want mobile, pay extra for SUP, then along comes Fiori with the same scenarios and a different mobile UI and different license costs again.
At the end of the day customers need to see a fair ROI or there won’t be an incentive to continue investment.
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I wholeheartedly agree – customers are the best judge of what is a fair price. Vendors can try to justify – but success is defined by sales and adoption alone .
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Well, as one of the Twitter rabble rousers who suggested that making Fiori available to existing customers at no additional charge (which is DIFFERENT THAN FREE), I feel compelled to chime in.
I think Dennis is onto a key differentiation here. Offering something “free” is different than providing evolved/bundled capabilities to existing customers, who have already invested a great deal in licenses, and who are paying usury rates for annual support. I think it would be fair to say that SAP has not delivered huge progress towards an improved user experience over the past 10-15 years or so, despite more than a few attempts. A decade or so ago, I built a nice business on “UI simplification” in the manufacturing space – allowing task workers to avoid SAP GUI altogether and easily complete certain business functions with minimal training. That company was acquired by SAP in 2005 (Lighthammer), and at that point, I had my first personal experience with using the SAP UI’s when I had to book a trip and fill out an expense report. I was scarred and damaged from the experience, and was lucky enough to have a kind assistant who hid my from that forever. 😉
So, when solutions such as Fiori that merely provide an evolved and simplified interface that allows users to more easily perform tasks on business processes *for which they have already paid licenses and continue to pay support*, I find it curious that SAP would consider charging for what should have been there all along. I suppose it’s also a glaring indication of the survival of the 1990’s mindset of perpetual licenses, revenues first/customer last, milk the relationship, and so on that has permeated the enterprise software space for so long. Do you think most modern SaaS vendors typically charge extra for UX evolution? Of course not, and it typically is rolled out in near real time. Another example of the anachronistic approaches that the larger enterprise SW companies are wedded to. Believe me, I don’t envy the situation SAP finds itself in – a mature market, with few big “whales” left to catch, declining margins and increasing competition (particularly in the SME space), and a huge amount of inertia (which differs greatly from momentum).
There will also come a time when customers get tired of the abuse that they’ve been put through by their enterprise software vendors who, quite frankly, have pretty much held all the cards due to a lack of viable options and the reality of lock-in. And similarly, there will come a time when CIOs will be held accountable for purchasing the IT equivalent of the infamous $10,000 toilet seat. CIOs who spend their companies’ monies so readily with their golfing buddies without ROI accountability hopefully won’t survive the decade.
While ridiculous claims of the “death of IT” are being dredged up again, absurd as they are, there’s some substance in the concept of the “death of traditional IT” – and it would be a net positive for the customers, and the entire ecosystem for that evolution to occur. The ones who stand to lose are those who represent status quo. As Machiavelli so correctly stated in “The Prince”:
“It must be considered that there is nothing more difficult to carry out nor more doubtful of success nor more dangerous to handle than to initiate a new order of things; for the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order”
There will come a time when the status quo will be torn down – whether Schumpeter’s concept of “creative destruction” or Christensen’s “innovator’s dilemma”. It was always my hope that SAP had the people and capability to handle such a discontinuity with its own innovations, ensuring continued customer value and retention. I genuinely feel that the *people* (particularly on the development and solution management side of things) want this to be the case. But I’m growing skeptical that the “machine” is capable of this kind of evolution, particularly given the power of the sales/field organization.
Time will tell, I suppose, but it will require non-traditional thinking for SAP to evolve its business in a way the deals with the economic and technology realities of a new world, leverages the depth of knowledge and passion of its people, builds upon its incredible installed base, but also prepares the company for the future rather than being slave to its past.
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I can’t comment on SAP’s policies Rick – not high enough in the food chain to represent the company . But I have a bit of difference of opinion to your logic in a general way .
When a software vendor charges maintenance – it comes with a contract that says what is covered and what is not . Customers read that before they sign and commit themselves . And usually it has clauses for some enhancements too . In my consulting experience – hardly any customer uses these enhancements even when there is no extra fees for software .
Coming to user experience – this is a hard problem all around , not just for vendors but customers too . One can argue that UI is old and useless . Well, at the time it was introduced – it worked out well . And where it did not – there was an option to make better UIs with custom coding . And customers who took those routes may or may not want another change to deal with . But then UI is just one part of UX . How about performance ? Every year, INtel comes out with a better chip that is faster than one before . Is there also an expectation that intel should not charge anything for new chip as it can be viewed as “the first generation should have been faster and we already paid for it?” . Of course not – so why would UI be different from hardware, databases and everything else that improved with time but costs extra ?
About newer vendors giving away UI (and mobile UI) for free compared to larger established vendors – this is a complex problem indeed . From a cost perspective , I doubt those vendors are eating the cost at all . since they started business later than competitors , they could see the benefit of making it “seemingly free” by folding the price into their subscription . This is a hard act to follow – and I am as curious as you to see how established vendors deal with it .
Bottom line – adoption will indicate if vendor strategy worked or not . If customers buy and use the new product – strategy and price are justified . Otherwise , it is not justified .
Market determines price in long term .
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Yup. All reasonable points. I’m simply suggesting that analyzing the past is not necessarily a good predictor of what is optimal for doing business in the future. Thanks for the feedback!
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I agree Rick – analyzing past is fun, but no way of saying for sure it will help unravel future
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Refering specifically to individual products and services…..
If it is free in dollar terms, where else am I getting stung, what else is the supplier after ? Facebook is an obvious example, an ecosystem based on tracking the attention graph of a vast number of users. These users are attracted by the network effect, and the price (i.e. zero). This is sustainable, there is a viable business model.
Unfortunately, some users aren’t so lucky… Google Reader is a free product. So it dies in less than two weeks. Not because it is a bad product. Not because it’s unpopular. But, because Google couldn’t work out how to monetise it.
tl;dr – make sure there’s a business model behind any freebies you want to rely on !
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Very well said mate – free needs a business model that is sustainable . And even FB is barely making big $$ in actual revenue
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Depends entirely on your definition of ‘free.’ Information wants to be free we are told but the cost of production has to be met from somewhere. Other things should be bundled – as in included – that’s not really free but has the dimension of ‘feeling’ free. Your blog platform is free – but the cost of you operating it certainly isn’t (family time/business time etc) and when I read it then I am paying you with my attention. And that has a cost as well.
As us accountants say – it all depends…
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Business models evolve over time – people who offer something today can factor some “seemingly free” stuff into their pricing . Established players cannot do that easily without big disruption . Neither case is free in real – one is “seemingly” free though. As you said – it depends 🙂
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Vijay, I agree with you and it is reality..In my dictionary, Free = RED LIGHT and someone is going to drop the ball….
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I think so too – free is not very sustainable as a business model
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Vijay,
I could not agree more with you. Unfortunately we all have educated customers to act in a certain way. I have seen during the last year several POC. Customer wanted it all free and of course got it. This means that all three parties involved invested in something where there was no commitment from the customer in any way to really implement something. I fully second the thought of free = no or very little value. And actually it depends on all of us to make customers see it.
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Some customers do see it – but most do not . As you rightly said – this is a vendor created problem , for short term gains against their competitors. In many cases – the customer who demands free work or software hardly ever gives free anything to their own customers – which is ironical 🙂
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Hi Vijay, As you rightly said, nothing is really free in this business world,
but many things that matter and make us happy are for free – like smile,laughter,friends etc 🙂
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Good point – hard to put a price on friendship , love etc
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lessons learned.
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Just a quick one: Note that revenue recognition considerations can also affect the provision of “free” new features. My understanding is that accounting authorities could decide that some fraction of the original sales value of your product was in fact contingent on those new features, and that therefore the software company should not have recognized the full value of the perpetual license at sale time.
Here’s a good (long) review of all the nuances: http://www.iasplus.com/de/binary/usa/0905softwarerevenue.pdf
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Yes of course – this is a very valid risk, and to some extent arbitrary decisions can be made by an auditor or tax office after the fact .
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Vijay
Agreed that there is no free lunch but if the lunch you paid for is not good enough; you expect it to be fixed with a better lunch (for free). Sometimes,vendors have to provide product improvements for free purely because they didn’t get it right the first time. And oh, will it drive adoption? Absolutely, if it’s worth it. There is a reason why some of us haven’t moved to a paid word press platform 🙂
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If lunch u paid is no good – it absolutely has to be replaced with one u like . That is maintenance . But if all you ordered is soup and you somehow felt disappointed that the restaurant didn’t throw in a steak with it – will u stop eating at that restaurant ?
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