I read an article a sometime ago about how Microsoft is going ad-supported with their OS. Leave it to Microsoft to copy the Google machine. I suppose it was only inevitable. In time, digital means free is the next business model that will emerge–digital media has been the leader in the world of free time and time again. The following video from Wired outlines some of the logic behind the free revolution.
1. FREE is a Buzzy Keyword
When searches are done online or when you hear a product pitch, it helps to have the word FREE included. Why? People like to know they can get something for nothing. People will do crazy things to get things for free. Why the rush on Black Friday? It’s like a modern-day version of the Oklahoma Sooners. I recently watched Far and Away with Tom Cruise and Nicole Kidman. Tom’s character nearly refused to believe that land was being given away free of charge. What was the incentive? The incentive was productivity in other areas. If the government gave the land away for free, they knew people would work the land and the overall productivity would increase.That’s besides the point I am making here though.
Free is simply something that we can’t pass up. Free means its at least worth a try, an attempt. When someone says, “I’ll give it to you for free” are you going to say, “no.” You may pass it off as a crap product without fully trialing it, but you may have at least put somewhat of an effort. When competition between the other “paid” becomes stiff, free stands out. And, competition and price wars force other highly priced software solutions to come to a middle ground–giving the FREE version more clout.
2. In the long run, free becomes quality
While free software, in the short term may have its flaws, the long-run scenario is a bit different. Over a period of months and years, developers in the open-source and free environment have the time to play catch-up to the more robust applications already in the market. Once an enterprise solution has been built small widgets can be easily added, but the core application is already present. Let’s take a look at digital signage software applications as an example here. Once you have the majority of the features a customer is looking for, the extra whistles and bells are not worth the monetary expense. Think about it. If you were comparing one apple to another and each were on par with one another, wouldn’t you go with the free version?
This is analogous to nearly every industry. Over time, free products eventually can be held to the same standard as their once overly robust competitors. When this is the case, the price war is over because free wins. If you don’t believe me, look at the history of much of the web. This is where the Internet works toward.
3. The transition from “free” to “pay” is not difficult
Free is a “bait” tactic that works. The willingness to pay ranges between customers. I have seen many customers completely shy away from various technologies because of the shear costs involved. Generally this is the case with those who have little money and would not be worth the headache of working with. However, when something is given out freely it is much easier to get mass use of it from the masses. Once the masses begin using the product, monetizing is done easily. A good example here is Twitter–although I don’t think they have, as yet, completely solidified their revenue model.
Another reason the digital signage marketplace can justify giving out software freely is because the industry is tied so closely to advertising. When the world of advertising can be implemented into something digital, it almost always comes at a lower price. Think about Google’s Nexus One. The recurring cost of having one is super low and is somewhat supplemented by Google’s advertising-based revenue model. Conclusively, giving something out for free gets people hooked and then it’s easier to charge them for add-on services. It’s like a crack dealer who also deals in other illicit drugs.
4. SaaS costs force SaaS prices to zero
When all we are using is software and bandwidth, prices must go to zero. Once the software for a particular application is created, the fixed cost of development is essentially over. The only thing the “service” provides is data delivery and storage. And, how expensive is that? Not very. I can get extra storage for any hardware for a song. As for data delivery. Take your pick: LAN, WAN, cellular, and satellite are all competitors. The prices may be recurring, but are generally fixed. Additionally, prices there will most likely continue to fall as the world becomes more and more connected. Think about the telecom industry. For years they drove to the bank, charging exorbitant fees for long distance services. Deregulation and eventually VOIP software services imploded their revenue. Most telecom companies are in a different place than where they used to be.
5. UGC will help drive costs down
Previously on the digital signage blog, I have spoken about how content will take the place of software for revenue as a content as a service model. While my personal feeling is that content will eventually be where the industry makes most of its recurring revenue ( primarily because of the actual time involved in creating custom content), we have to be aware that prices could go to zero there as well due to a litany of user-generated content available. The WWW gives us access to such content as well. Once the technology is maturely in place, the content is the recurring piece to the pie. Having a greater abundance of free user generated content also drives the costs of the the software down. When people know they are simply paying for lines of code and that the code has been around for a decade, they find it difficult to justify paying a high price for something that only schedules and manages content delivery. As the recurring revenue source–which is content in a digital industry–becomes free through UGC, the software managing said content will nearly fall to zero as well. Think of open source content management for website creation. Now think about how much monthly hosting is for a basic website. If you’re paying more than $5/month then you were taken to the cleaners.
In conclusion, software goes free in the long run. Free digital signage software will be widespread when advertising can readily support it with the proper number of eyes and economies of scale. Where is digital signage headed in the realm of free software? Only time will tell.