When signage software is free

March 17, 2008 by Dave Haynes

I had a chat the other day with a sales prospect about software prices, and the merits of stuff that was being given away free.

He’d had a sniff at it, understandably looking to cut costs to the bone, but decided he was pretty much going to get what he paid for – and that if he wanted more than absolutely basic functionality, it was going to cost real money.

Our industry is just starting to see “free” software offers coming into the space – something that should probably disturb the hell out of companies who employ a software subscription model and charge premium (ie higher than industry average) fees.

The Editor in Chief of Wired, Chris Anderson, has an opinion piece out about “freeconomics” – the notion that the technology business (and any business that now does much of its work via the Web) is increasingly moving to a free model.

There’s nothing new about technology’s deflationary force, Anderson writes, relating how the costs of serrvers and bandwidth have been in a free-fall, but what is new is the speed at which industries of all sorts are becoming digital businesses and thus able to exploit those economics. When Google turned advertising into a software application, a classic services business formerly based on human economics (things get more expensive each year) switched to software economics (things get cheaper). So, too, for everything from banking to gambling. The moment a company’s primary expenses become things based in silicon, free becomes not just an option but the inevitable destination.

Anderson, who is advancing a book he’s writing about a “free” economy, goes into considerable detail about the different models associated with free, and wraps it up by pointing out that there is a whole generation out there now that was or is being raised on the Web – and very much used to getting content and services – be it e-mail, social networking, photo editing, you name it, free.

So what might this mean to our space?

Probably not much for a while. This is not mass market software and an ad-supported model is not yet there, and probably won’t be for a long time. The handful of software offers that are free, coming out of places like India where development costs are a fraction of North America’s or Europe’s, are going to offer very limited functionality and make their money upselling into paid services.

So the people migrating right now to “free” services are not terribly high value, and it’s almost good that they have a place to turn.

But what happens down the road, as more of these guys enter the space, competition heats up, and stuff thought to be premium is offered free? Pretty soon, these free offers are pretty damn robust and the customers software companies spent a LOT of money to acquire are going to get harder and harder to retain. Fees are most definitely going to get forced south, and if I was a guy selling Software as a Service at a $100 or more a month per player (and they are out there) I would be twitchy.

That’s at least part of the reason you are seeing companies in this space rounding out their offers, getting into other aspects of the business (like content production and managed services) that cannot be so easily commoditized.

The “free” theory as it applies to this space is not without its flaws. With free, you sign up and you are on your own. No training. No advice. Minimal technical support. No real input on development.

Most of all, at least for a few years, someone who decides to pull the trigger on a network of screens (who despite free software services is going to spend a big chunk of change on gear, connectivity and labor) will be taking a career-making or killing risk by going with a free provider. If that provider’s free model doesn’t play out, and the provider goes out of business, there’s no Plan B for the customer.

And probably no warning.

Gulp.