Google is Learning the Reality of Free ?

Great catch from the folks over at TechCrunch. In their post “What the hell happened to the free version of Google Apps” ,   they take note that Google is doing everything possible to channel new users of Google Apps to the paid version.  This apparent shift in Google strategy regarding free raises some interesting questions:

1. Google is building a significant reseller channel.  The channel is responsible for selling into corporate accounts.  Obviously resellers of Google products don’t want to compete with free from Google. Which raises the question, “What is the better platform for selling into corporations, the web or direct sales ?”. 

2. Is Google now following the MicroSoft lead ?   It may well be that we have seen a bifurcation of the free model between corporate and consumer sales.  Free has its place with consumers, but where does it work and prevail with corporations ?  MicroSoft has long been a proponent of online products being free for consumers, but charge the hell out of corporations every chance you get.   Google tried to fight this model for a long time, merely dipping its toe into selling into corporations.  Are they now pulling an about face ?

3.  Has Google realized that at least in the corporate market (B2B), if you live by free, you die by free ? That the rising expectations of support and product enhancements by corporations never end and are expensive to live up to ?

Are there examples of companies who have been able to survive with an exclusively free model in the B2B space ?

16 thoughts on “Google is Learning the Reality of Free ?

  1. Ad funded GASE (Google Apps Standard Edition) is here to stay but only scales up to 50 users. Over 50 users and you are forced to buy the Premium edition which has a monthly fee and competes directly with a hosted suite Microsoft sells.

    Google attacking MS on the productivity front is a waste of funds. All the Telcos and big partners are already making money off Microsoft and stand to make more money pitching the hosted version of the server products they already sell.

    This is another classic example of a company with a killer revenue stream (Search in this case) desperately trying to grow in order to hit wall street expectations. MS is doing the same thing with a $500M Bing advertising campaign.

    Comment by dallasrealestateman -

  2. Pingback: Bill Gurley on the “Free” Business Model «

  3. Free allows you to create a big bubble of users – but when you try to touch the bubble with anything other than adverts – pop! – it’s gone. Hence most SNs (for example) are, and will remain, free. If any one SN attempted to charge for the service, users would move to the next best available free network. So it’s true: who lives by free, dies by free.

    The really nasty part of the free technique isn’t the damage you do to yourself (or your investors). Pardon the pun, but it’s a free world: if you want to beat yourself up, then you can. The real problem is what you end up doing to your competitors – you take them down with you. I call this Kamikaze Marketing.

    The reason why free, mainly in the guise of freemium, is so widespread has less to do with the merits of a model where on average 97% of your users don’t pay – and a lot more to with a lack of a viable alternative.

    People hate subscriptions. When companies finally realize this and move to usage-based payment models then perhaps we can look back on this current obsession with free in the same way we look back at the way people dressed in the seventies.

    Comment by hymanroth -

  4. Reminiscent of the saying ‘there is no such thing as a free lunch’… perhaps we are coming to understand this more and more in today’s economic/political/social climate.

    Mark Montoya

    Comment by markmontoya -

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  6. Hey Mark,

    I think you are overplaying the free thing. Not quite sure how free changes industry dynamics. Here’s my point of view.

    Comment by jdodge349 -

  7. Pingback: Cuban’s Death by `Free’ Theory Overplayed - SmartPlanet

  8. I think you’re right on the reality of free. Businesses, especially start-ups, have a choice to make. They can go after the consumers, but this forces an ad driven business model, since consumers aren’t typically willing to pay for services. Alternatively, a business can target other businesses, and this b2b model can actually create revenue from the start, since businesses are more understanding about actually paying for something they use. It does tend to weed out the less utilitarian applications though. I wonder how something like flickr would have done if it weren’t free.

    Comment by MobileJay -

  9. It appears to have been a UI redesign mistake. Via TechCrunch:

    Google responded, “In experimenting with a number of different landing page layouts, the link to Standard Edition was inadvertently dropped from one of the variations. We are in the process of restoring it and you should see it soon. We have no intention of eliminating Google Apps Standard Edition, and are sorry for the confusion.”

    Comment by maltschul -

  10. M.Wanzer

    Well, I guess I have to question what you mean by survive by an exclusively free model. I would say Red Hat is an example of a company that completely gives its product away, but charges for support. I think every company has to charge for something, while that might not be its actual products it could be support, or analytics about who is using their software. Is this what you mean? If you are asking are there any companies that survive by not charging for anything, I have to say no. I mean twitter is a company that is surviving by making no money (but thats because inverstor keep dumping capital into them)..but eventually they are going to have to charge for something..probably analytics for companies that want to know if the public is actually paying attention to their ads that are masked as “tweets”.

    From MC> Actually doesnt Red Hat give away an open source product that they have updated some ? My take on their business is that nothing they offer is for free. They started a service business around Unix and charged every step of the way. But you make my point with the Twitter example. They will have to charge for something. Butwhen they do, what happens to the dynamics of a company that has never sold anything ?

    Comment by M.Wanzer -

  11. Really, Mark? Really? Just by charging for a service, Google has improved their competitive position?

    It makes me kind of sad to see such emotional arguments about business stuff. The people who practice business model that are free-centric are (largely) not emotionally wrapped up in it; they’ve just found it’s the way to make the most money.

    What’s happening here with Google is that they’ve found that they can maximize revenue by encouraging users to pay. Sure. Great. Is that going to magically protect them from being killed off by another offering, either free or paid? Of course not.

    Repeat after me: free is not a business model. Free is a component of a business model. That’s it.

    As for companies that have been successful with purely free models? Sure, there are tons:

    – HelmsBriscoe: arranges corporate events, like booking hotels and procuring meeting rooms, at no cost to company hosting event.
    They charge for their service, its just that the hotels/centers pay. nothing free here>

    – The Stranger, SF Weekly, Village Voice, etc. Sure, they’re struggling a bit now, but community papers had a pretty good run for, what, 50 years?
    From MC>Actually, this is the perfect example of live by free, die by free. When the net came along and it was “more free”. meaning less intrusive and easier to access, its been tough for free newspapers to respond because of the infrastructure and hard costs they have to continuously absorb.

    – NBC, CBS, etc (broadcasting units only). They seem to be doing more or less ok with advertising based models. Do you think they would do better if they started charging consumers to watch their broadcasts?
    From MC> Again you make my point. They lived by free, now they cant compete because of free. As a result, they are forcing retransmission fees down the throats of video distributors, which in turn pass them on to consumers. They recognize that their “free airwaves” have huge constraints from the FCC and unless they get paid, they wont be able to compete with cable networks that get paid a sub fee and sell advertising, without FCC restrictions on c ontent

    I get that some people just hate the concept of free. But it’s a bummer that a guy as bright as Mark is making business decisions based on philosophical opposition to a model. I’ll bet there are a *ton* of ways his business interests could make more money by incorporating free offerings (some are already free-centric, of course, but he’d never admit it).

    Comment by Brooks Talley -

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  13. You come into this world naked and you leave the world naked. Mark are you saying Google is slowly dying? Seems you have suggestions by posting about twitter and facebook being the new Google.

    What’s the next big thing. I wont invest in facebook or twitter because their financial statements are about as profitable as Bernie Ebbers stock options.

    Comment by starwinar -

  14. The “FREE” version is still available, its just harder to find:

    Comment by joshnolan22 -

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  16. I actually think this is more about some internal VP of Google enterprise getting a growth number and trying to hit it.

    Comment by stepbackforward -

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