"Remember in 94 when Microsoft suddenly realised they had completely missed the internet boat? Netscape was THE browser, Microsoft didn't even have a browser. Solution? Freemium it! Microsoft went to Mosiac ... Then they shafted Mosaic and Netscape all in one go by giving the browser away 'free'. Mosaic, who did all the development effort for what is now IE, were shafted. Netscape were also shafted. So there you have a lesson on how 'free' is done."
Now Microsoft is shafted by the same tactic (or, in the Shakespearian idiom, 'hoist by his own petard' — a petard being a medieval word for a bomb). Google's new Chrome OS (see Techmeme discussion) will be a free-of-charge, open-source competitor to the Windows operating system, which is such a cashcow for Microsoft that its license fee is routinely described as a 'tax' on PC owners.
I'm old enough to remember when Microsoft worked with Intel and Compaq to make an end-run around IBM back in the late 1980's, sabotaging the larger vendor's abortive attempt to create a new PC operating system called OS/2 that would be a successor to the older PC-DOS developed for IBM by Microsoft. Windows triumphed over OS/2 because IBM moved too slowly and was too internally focused on its own roadmap for developing the PC to understand the importance of keeping ahead of other emerging new technologies, in particular Intel's new 386 chip. Is Microsoft making the same mistakes now with Windows Vista and its successor, Windows 7?
Perhaps Microsoft is doomed to fail simply by virtue of being the incumbent vendor, with ingrained habits and obligations to an existing customer base that prevent it making the right choices (such as looking at the world through the prism of 'software plus services' instead of reversing the polarity and thinking from a perspective of 'services plus software'). Google has none of that baggage holding it back, plus it has a huge advantage Microsoft lacked back in the 1990s — Microsoft had a fortunate windfall revenue stream from licensing PC-DOS, but the sums are peanuts compared to the billions of dollars Google generates today from its dominance of contextual Web advertising.
One thing I always ask when I see a vendor pursing a free strategy is, what's the motive? As set out here yesterday, there's a cost to free, which someone will end up paying. Often it's customers who pay the price — look at the deadening of competition in the Web browser market once Internet Explorer had crushed its rival Netscape Navigator, leaving users in limbo until Firefox emerged to introduce long-needed innovation such as tabbed browsing. In the case of Google's Chrome OS, I think there's genuine cause for optimism, since the project seems to have been born out of frustration with the limitations of present-day operating systems to support web-based applications. If Google's motivation is to unleash greater innovation and capability in cloud services and applications — which makes sense, since that is where Google's future prosperity lies — then this is one case where a free product could benefit the market as whole. Except Microsoft, of course, so let that be a lesson to us all: you reap what you sow.