Giving it all away

As I opened the plastic cover wrapped around the latest edition of my favourite magazine, a bunch of things tumbled out onto the desk; notably two CD-ROMs with some pretty good software, and this got me thinking.

What we really want beyond awareness is follow-on sales, which represent another key goal for offering freeware.

Aletha Ling, ITWeb's columnists

One of the counter-intuitive business practices of the past few years is the idea of giving your products away for free. This is a phenomenon that has exploded in the area of digital and information goods. The Internet has further fuelled this trend with many Web site operators jumping enthusiastically on the bandwagon.

Two key factors make freeware so viable in the digital world. The first is the low marginal cost of creating copies of digital products, such as information products. The second is even more crucial to understand. A product such as an information product is an "experience good" - a client actually does not know what it is worth until they have tried it and the free versions provide an easy way for the customer to experience the potential value.

There would, however, be no point in having a business that only gave away its products. Earlier on I pointed to the Web site operators. Many of these are now grappling with finding the sustainable business logic behind the "giveaway" strategy.

In the context of this column I would like to consider in particular the idea of "information products" and the business logic behind freeware in this area.

In general, we are talking about volume markets when we consider this topic, so it is crucial to build awareness. Freeware is a very good way of doing this.

Think about those that touch our lives. Computer games, for example, are distributed with magazines or offered free on the Web. These free versions showcase the excitement of the game but do not allow the player to proceed beyond certain levels. Think about how difficult it is to resist buying the game once you are drawn into it. Another example is market research, where the organisation showcases some summary findings on the Net but you have to pay for the full report.

In both of these examples there is another force at work. The idea in both cases is viable because of the "uniqueness" of the information product, which makes it difficult to be substituted. A computer game is unique. Along similar lines, if you are interested in a particular research report from a particular company (because of its credibility), that is also unique.

A key point, therefore, is that if the product is a commodity, giving away free versions would only underscore that point. This is not a good strategy for commodity products.

What we really want beyond awareness is follow-on sales, which represent another key goal for offering freeware. The idea here is that you give away a workable, viable, free version where you have a set of "add-on" products the user can buy. It is essential that the freeware is as complete as possible since the follow-on sales depends on creating a "dependency" on the freeware product.

Some ideas regarding follow-on sales would be services, support, site licences, and additional modules. If done correctly, this could result in the product becoming a "de facto" standard which in turn leads to follow-on sales as the community using it expands.

A good example in the IT world is Java. Clearly the objective behind Java is to create a huge wave of adoption for the technology and to make it pervasive as a programming language. Freeware has played, and will continue to play, a huge role in this strategy.

Given the huge competition around the Internet and electronic commerce, the idea of attracting "eyeballs" is a key marketing issue and therefore a serious business goal that could be serviced by giving away freeware.

Information is the key product of the Internet; it is the value proposition that makes it all work and there is so much of it. So if you have an information product such as a popular magazine, the very fact that a large community of people comes to the site represents the real value. The content is given away, but in return the "real estate" around the site becomes valuable, so money is made by selling advertising space.

But beyond that is the value in learning about the "readers/consumers/customers" who come to the site. The future value of that knowledge about customers and their habits and preferences and therefore the ability to provide specialised marketing to those communities has huge value.

Success in creating markets, and selling information and digital products, hinges as always on smart thinking and clear strategy. Freeware is not about giving away stuff; freeware when properly applied is an element of an overall marketing strategy. It is a powerful idea that can be applied particularly well to the new classes of products that typify the information age.