Continuing to Define the Value of Free

There is no doubt that the concept of “free” has been a staple of the business world for over a century. And Chris Anderson’s new book on the topic sheds a lot of light on the subject – however mostly in the consumer goods and media worlds. The software world, while heavily penetrated by open source proponents, is really just now beginning to see the power and influence of free.

I just read a nice op-ed on the topic by Box.net founder Aaron Levie. With Box.net, Levie has an interesting model that can work a bit with “free,” because the idea of storage and access is much more of a commodity sell than, say, CRM. But Levie has some good points and I’m inclined to agree with him.

Namely, I see Levie’s points that Free is not a business model and that “Free will expand your market size and scope instantly; make sure you’re prepared, and make sure you can survive and thrive if only a subset ultimately pay you” as spot on. Here at SugarCRM, we learned this firsthand – as we have hundreds of thousands of users in total, but a smaller subset of paying customers. We are able to thrive and grow – mainly because the Community Edition proves its value, and also because the buzz that our free edition caused garnered the attention of paying users.

I think “free” will continue to mean different things in different areas of the tech world. While the freemium model and I guess SugarCRM fits in there) is working well in the SMB and other parts of the software world, the large enterprise space may not be a huge boon for those touting freemium. The startup capital and sales cycles do not lend themselves all that well to “free” in my opinion.

BUT – large enterprise software firms like SAP and Oracle have flirted with free in the past, especially around CRM. Applications like CRM can be a strong value-add for a company selling complex ERP and other systems. The idea being this: Buy the ERP solution and the professional services/maintenance that is implied, and get a robust enterprise CRM system for free. Bundling is a version of free that seems to have been overlooked in this latest round of discussions on the topic.

All told, free has been around for a long time, and is not going anywhere any time soon. I think the software world will continue to learn from free, and as long as everyone understands that revenue and viability must be at the heart of any new model, the concept of free will be used by a lot of different start ups going forward.