The High Price Paid For Free

The greatest problem facing many businesses today from the solo practitioner to the multinational conglomerate is the ever-increasing cost of “Free.” This dilemma is not isolated to a certain product offering. Nor, just a shipping issue. It’s far more encompassing.

Since this period now known as the “information age” began. Far too many of us tend to forget if this new “age” were a person, we would still classify it as being young enough to remain as a child on its parents health insurance. For all intents and purposes, it’s still in the development stage though it’s now viewed as been around forever. The iPhone® itself as of this writing would only be old enough to enter the first grade!

Although it seems like I’m being a little tongue in cheek. If true commerce can be considered the matriarch of business. (the actual sale of goods from one to another in which actual legal tender is exchanged. Where the end result is satisfaction to the buyer, and a net profit for the seller) Than in theory today’s IC (Information Commerce) would represent as its newest child.

IC in today’s world pretty much covers all one does both from their desktop, right through to mobile. Whether business or personal. If you interact with an electronic platform to read, listen, watch, or purchase anything electronically today. You’re engaging in IC. From Amazon® to social media. From App’s, to reading this article. All of it is IC. (Remember, the C stands for commerce and, how I define commerce is stated in the preceding paragraph above.)

The troubling factor I see becoming more prevalent comes two-fold. The first: Many users (or non paying customers) have a sense of entitlement believing that all IC should be free – no matter what. And, so far that viewpoint has been rewarded with even more “free” offerings for quite some time. Which, has only hardened that viewpoint making it even stronger.

However, it’s this second factor that is more troubling in my view.

Many of today’s newest entrepreneurs or business leaders creating all this new IC seemingly believe the same. This viewpoint seems to be increasing side by side, day by day, more and more, right in sync as the markets themselves move higher, and higher. The compulsion to disregard traditional business principles such as,”to generate net profits as quickly as possible” (if not sooner) seems lost on them.

No where is this more apparent than in silicon valley today. Although, it is far from being limited to that region. It’s now – once again, the hot bed. We’ve once again returned to a slightly different yet, very recognizable place. It seems as Yogi would say, “It’s Deja Vu, all over again!” It’s all about the Series A. Not about building a true business from scratch in my view.

It’s near comical to me when I’m speaking to a group when I state: “If you start a business from the sole premise as to create a great product, then make it available for free so that it will get users, rave reviews, and more quickly. Yet, don’t care or even disregard if anyone would pay to use or keep it – bankruptcy is where it will end – even faster.” For the room then feels as if I just insulted someones mother.

This glaringly obvious problem stems from a culture now moving at an ever-increasing pace. Where more and more they’re once again operating under the guise; “Build a mediocre product quickly in order to create a great fairytale business model – that can be told – then sold.”

I’m old enough to remember a sock puppet. Let alone today’s increasing laundry pile of disposable “free” user adoption business models that went belly up.

Far too many entrepreneurs are enamored in trying to create a business where success is predicated on how many “likes” or how quickly they can garner the “buzz” of none paying users as some touchstone of success. Rather, than focusing on the only thing that matters: A product that a customer finds useful and is willing to pay for – with legal tender. Disregarding all other monikers of so-called “success” as distractions.

The only reason these flawed models based on “free” are able to last longer than the life of a may fly? VC (venture capital) in all its forms. Without it – there is no more “free” as it’s now known. Many entrepreneurs of today seem to either forget this fact – or willingly disregard it.

Trying to make up for poor sales by adding more free users is just as ridiculous as selling dollar bills for 99 cents but, trying to make it up on volume. (I’ll leave the obvious monetary jokes of today’s Fed. Reserve aside for now)

Reasons such as this are a primary driver for why I have been expressing cautious tones on the antics currently taking place in today’s capital markets. For if the markets were to once again have a hiccup out of nowhere resulting in any meaningful decline as witnessed in 2008. Everything changes. I truly believe that’s not a Captain Obvious statement. I truly believe “free” as it’s currently known and experienced in today’s business world – ceases to exist. Period.

There’s nothing wrong with “free” within a business model. However, let’s not confuse “free” with pro bono. Lawyers and others do a lot of pro bono work as in free “for the public good.” However it’s the paying clients that subsidize it. A lawyer with no paying clients is the equivalent of an actor with no screen time. They’ll both need to wait tables to pay the rent.

I know a great many are shaking their heads. However one doesn’t need to look any further than today’s darlings of Wall Street once again to see they themselves scrambling as to come up with anything as to “get paid.” Even the early adopters and benefactors of the “free” model are tacking port to starboard and back in a race to move from “free” to pay anywhere possible.

Just look today at LinkedIn®. Free, free, free, correct? Well not really. Maybe free to the users currently, but at what price? All your nice personal info on display is just free inventory for them to sell to the highest bidder. Oh, by the way. Their earnings report… Well, not so good in the investors eyes so they expressed their feelings with a 10% or so loss in share pricing within minutes of its release.

Maybe in anticipation of just such a transgression is why they started a new feature known to many as “endorsing.” This is where instead of someone you know giving you a testimonial or endorsement. This new feature systematically adds you to connections with people you’ve never met, know, or done business with. However, what appears to be the key reason why they would do such “connecting.” Is it artificially raises your status or expertise levels within LinkedIn.

Although for you it’s as meaningless as adding ABC after your name to look or feel important. One wonders if it’s a nice way for them to sell “higher profile” data for more money? Just something that makes one think, “Hmmmm.”

Google® is once again changing or proposing new changes. In a recent story it seems they are contemplating the idea of dropping the url commonly displayed in search results. Why?

One could argue to make the results look neater. However, no url makes it a lot easier as to unwittingly force users to click on a site they might have at first instinctively avoided. You’ll now just need to “click” on it (if implemented) to find out if it’s useful, relevant, or as you first thought – from a spammer site.

By the way, that is how Google supplies free search correct? From advertisers paying for “clicks?” Again, just something that makes one go – hmmm.

Even YouTube® is toying with the notion of a subscription based model as announced this week. Just a couple of years ago this would be laughed at from the likes of Goog itself. Not any more. If it were to be successful. Would it allow more free content to be uploaded? Or, less as in now you’ll truly need to “pay to play.”

I stated in an article a while ago. Would people continue to use Twitter® more, less, or even at all, if the model needed to go from free for 140 characters to pay? However, you may type as many characters as you wanted. (If you like here are links to 2 articles that were published which are also in my book relating to this topic of “free.” You might find them useful for more expanded reading on this whole subject. They are here and here)

Currently more, and more there seems to be a never-ending parade of inept new businesses created – just waiting to die. Most are based solely on the “free” business model. (not forgetting the myriad already dead and buried) They’re operating primarily via the use of paying all the bills, as well as salaries – with speculation capital till the “ad revenue” materializes (if ever). That seems the end all be all goal from the start. Failure in my view has morphed from “not an option” to possibly “an intended option” so one can start the process all over again. (aka “Serial Entrepreneurism”)

Far more often than not. It’s when the spec money runs out – and the liquidation signs go up is when the advertisers finally show. To then place banner ads for the “Going Out Of Business Sale.”

That’s not to say that “free” doesn’t work. I myself use “free” in my own business models. However, I’ve thought long and carefully on what I would, or would not do for free, pro bono, or charity. Far too many as I stated earlier go rushing head first into “free” because it seems that’s all that matters. It isn’t.

Business is business. And free can be a part of that business as long as one understands the true costs associated with “free.”

Understanding a business means understanding all costs. Both as a user – as well as provider.

© 2013 Mark St.Cyr