Cheap or Free?

A couple of us walked into Powell’s Book Store near the office yesterday to find this:

Someone’s got a sense of humor. Dick Luebke, an advisor, took a snapshot with his new iPhone 3Gs. The irony is we had spent the morning discussing two important issues illustrated in this photo.

The first is the difference between free and, well, cheap. Josh Kopelman of First Round Capital wrote an article called The Penny Gap in which he talked about the problems with getting someone to go from $0 cost to $0.01 cost. The point Mr. Kopelman makes is that going from free to paid isn’t a consistent curve, that there’s a significant drop off in customer demand even when charging a penny. He points out that if you want a highly viral business then you have to figure out how to charge the consumer $0 because “premium” services are not viral.

The second is straight from Chris Anderson’s Free. Mr. Anderson argues that commodity information is trying to be free while customized information is trying to be expensive. A commodity, he argues, is when everybody gets the same thing and custom is when the thing I get is unique and meaningful to me. Dick supplemented Mr. Anderson’s argument by adding the concept of priceless. The more important and longer I want to keep the customized information, the more I am willing to pay.

We have been struggling here with the commoditization of our old business. At one time, people paid upwards of $130-$400 for a sophisticated hardware calculator. powerOne, our software version for Palm, Windows Mobile and BlackBerry, were priced between $60 and $100. But now it seems calculations are available everywhere. They are cheap in the App Store. They are free on the web. It has become clearer to me that while we have some unique customization features, that these features give us an edge to be the winner in a commoditized world but don’t allow us to charge a premium. It’s not even clear that it can get us to our modest break even goals.

I’m excited to add these customization features to FastFigures, but it’s past time for us to turn our attention to the bigger product goals and vision, hopefully those that we can build a sustainable business around.

One thought on “Cheap or Free?

  1. I say go for free. The real challenge for you is reinventing how to monetize your product given this new pricing model. IMO you have more options in this regard if the price is $0, because as you’ve noted the target market is much larger if the product is ‘free’. Back to square one…what pain do we address, how does a user perceive the interaction and outcome? What is the value to them, and what’s the best point for a monetary transaction?

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