Monopoly friendly: be free

Google, Skype, Firefox, Kazaa and others have introduced a new way of selling technology: giving it away.

The competition may try to make a better product at a lower price, but if the lowest price is free… Don’t wait!  Do it before a competitor adopts this strategy.

This business model is subversive and is totally destabilizing the system.  It’s making a big impression on consumers who can research, read the news, make phones calls, and listen to music for free (1).

What is surprising is that this economic model is working and is giving rise to monopolies that are profitable and friendly.  The owner gives software or a service in exchange for the client’s confidence, with downloading or a visit to the site a way of “voting” for the product.  By following this strategy, Skype has become a worldwide success in less than a year with more than 10 million downloads.

We can take this further and ask ourselves about the future of Microsoft, Oracle, BEA, …  All have a good product and client base but are threatened by competitors who offer quality products for “free” (2). These companies won’t disappear, but they will have to cope with a long and painful decline, just as HP and Compaq did when faced with Dell.

Specialists retort that paying for competitors is better.  Even if this were true, for how long will it last?  It must be remembered that free alternatives are present in spite of a lack of promotional means.

Firefox has won the media battle!  The (re)birth of “phoenix” foreshadows a stunning success!

__________________________________________
(1) Free newspapers are experiencing similar success.
(2) Linux, Open office, mySQL, Apache, …
(3) Compared with the billions of Microsoft.

Comments

[Alec Saunders]

I think you need to decompose the business model a little more Laurent, because the examples you've cited are very diverse. It's not even true that they're all free, except for Firefox.

Google has a business model. Their revenue comes from advertising dollars, and their technology has become the most effective mechanism to deliver advertising on the web. I don't know if you've ever paid for placement on Google, but it's very easy to spend thousands of dollars on click-throughs.

Skype has a business model. This morning I spent 30 euro-cents on a telephone call using Skype-out. Shortly Skype-in will also be available, and for some amount of money you will pay to have people who aren't Skype users be able to contact you. Even so, Skype is a success if the metric is market share, but if it's revenue they've still got a long way to go.

Kazaa also has a business model. Those annoying pop-up ads and bits of spyware that it downloads are paid for by someone. Kazaa is more like Google than anything else.

What is firefox's model? They sell t-shirts and books and give away the software. Fundamentally, Firefox is saying that software, as intellectual property, has no value. So, they're not going to dominate on the revenue front. What about market share? It's highly unlikely they will get more than 10% ever -- they have no distribution model, either, other than the internet.

Is Firefox a business, or a crusade? I would never be able to get my investors to agree to finance something like Firefox.

TANSTAAFL (for those who aren't Robert Heinlein fans, "There Ain't No Such Thing As A Free Lunch").

[laurent bervas]

Thanks for you long comment :))
I agree concerning the different business models.

Concerning firefox :
> Is Firefox a business, or a crusade?
> I would never be able to get my investors
> to agree to finance something like Firefox.

It's like a crusade? you are right, and I'm in ;)
I believe in globalisation and in dreams.

Regards

We say no to software patents

WE NEED PATENTS BUT ...

[Jeff]

Google is becoming unfriendly and extremely arrogant as insiders dumping their shares. I wouldn't count on them to do no-evil.

[David Locke]

Giving away software for free in exchange for marketshare has been a staple of the software industry for a very long time. It even has a name, the New Lancaster Strategy.

Companies outside the software industry tried it during the dot boom and failed with it, because their underlying product was not software or technology. In the book "The Myth of Marketshare," the author documents how marketshare is a myth in all businesses except tech product-based businesses.

[David Locke]

Giving it away for free only works if you give the technology away to the geeks long before a market exists. This happens at the very front of the technology adoption lifecycle.

Preditory pricing occurs at the tail end of the technology adoption lifecycle when the only thing left to compete on is price, aka when the technology is commoditized. Preditory pricing is a claim typical to say the grocery business where there are no market barriers, rather than the technology industry where market barriers abound.