The Real Cost of Free Products and Services

As the old adage goes “There is no free lunch.”

Many games and consumer apps today are sold via sexy “try before you buy” freemium models where the companies entice you with just enough functionality to hook you into paid versions that offer more storage, functionality, rewards, and other perks.

“Free” more often than not implies trade-off. The trick is to balance these tradeoffs to ensure that your purchase delivers a net positive for your business. Anything less than “free” becomes a misnomer.

For the consumer, the model makes sense for apps that aren’t mission critical. You can preview and buy. If the full version doesn’t meet your needs then you shut it down or move to another application that works better. Switching costs are low. No harm. No foul. No one (but you) is the wiser.

Lately, and somewhat surprisingly, “free” has also been applied to larger ticket items – like enterprise software solutions – that have far-reaching and deeper functional capabilities than the latest trending game or social application. To entice you, some vendors are offering a free one-year license or subscription. In these cases, buyer beware of a wolf dressed up in sheep’s clothing.

price-tag-cost

Before committing to a “free” solution it’s worth committing to some due diligence. Here are some questions that every buyer should ask:

  • When free isn’t free: What are the additional costs involved? What are the implementation hours, integration costs, migration costs, operational costs, and opportunity costs? In a typical enterprise project, licenses or SaaS subscription cost is only a fraction of the overall cost. There is implementation and integration, training and roll out. More importantly, there is opportunity cost. Will your business run better with this solution or another that is not “free”? Which solution maximizes your ROI?
  • There’s more than meets the eye: Ask about hidden costs like marketing agreements, professional services charges, forced requirements and lock-ins, and switching costs. And, will the product still meet your needs after the initial “free” term has expired? Will you have more options and greater flexibility with another solution?
  • What’s behind the strategy: When companies are selling a “free” or “free-for-a-year” solution they are looking to do one of four things:
    1. Use the “free” portion as a loss leader, banking on your long-term success for increased contract values and back-end revenue.
    2. Working to gain market momentum with a flurry of new logos and win announcements.
    3. Lock you into their solution because the implicit and/or explicit change cost makes switching a hassle or worse.
    4. Compete on things other than the solution’s benefits, quality, and value. What do these strategies say about their business and their long-term business goals? And, where does each strategy leave you?
  • “Free” isn’t a guarantee of happy-ever after: Purchasing an enterprise solution is like getting married. You want a partner who will be with you for the long term, who will support you, enable you, and grow with you as your needs change. Careful that your “free” solution isn’t a drunk hook up that leaves a six Tylenol hangover. Enterprise solutions need to work over the long term so you are investing in not only software but in a company over the long haul. Make sure the company is someone you want to partner with and that the “free” product is worth the long-term investment. As Neil Sedaka reminded us, “Breaking up is hard to do.”

Free is rarely free. A “free-for-now” solution might look appealing but initial attractions can run thin after repeated attempts to fix problem areas. As a business owner, you want to solve problems and then move to the next highest priority. Your long-term success is contingent upon your ability to drive future success.

There is an economic and personal cost to failure. By asking some upfront questions you might just be ensuring that the real cost doesn’t end up being your job.

About the Author

Andres Botero
Andres Botero serves as Senior Vice President of Marketing at Aria Systems. He has over 20 years of enterprise experience in growing enterprise software, big data, and SaaS/Cloud B2B companies. His ability to drive exceptional results spans across functions, geographies, cultures, and time zones. Prior to joining Aria, Botero was the Chief Marketing Officer at Steelwedge and lead marketing globally for SAP’s Supply Chain Management (SCM) line of business. Botero earned his Bachelors of Industrial Engineering from Universidad de Los Andes in Colombia and his MBA from Stanford University Graduate School of Business. Outside of the office, Andres enjoys classic literature, music and playing squash. Other interests include the opera, personal finance, and soccer.

The Forrester Wave: Subscription Billing Platforms, Q4 2015

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