The sweet spot between free and cheap

Like most people I have a toolbox of free software that I use every day. But giving away things is not a sustainable business model by itself. As commoditization drives prices down, what's a commercial software vendor to do? One answer: find the profitable sweet spot between free and cheap.

Like many of you, I have a toolbox of helpful free software that I use every day. For example, Sysinternals has a nice suite of free utilities like the terrific Process Explorer and Filemon which I highly recommend. Source code is not available, and I don't have the freedom to redistribute the software myself or bundle it with my own software. But for something like this, I don't care.

Of course, giving away things is not a sustainable business model by itself. Mark Russinovich and Bryce Cogswell, creators of Sysinternals, make money by selling "Enterprise" versions of their software on their sister site, Winternals. Since they own the copyright, they can do whatever they like with it. 

Years ago, shareware was all the rage. You'd download software, try it out, and if you liked it, pay the author something. The problem was that most people would keep using the software without paying. I worked on a shareware game once, and I think maybe 5 people paid me anything for it. So, authors added nags or limited functionality to nudge users into shelling out the dough. For the most part, this is just annoying to the users. It's not a sustainable business model either. With a few exceptions there's just not enough money in it to support full time professional developers.

A new trend, which I find I rather like, is for low cost software. It's not exactly "new", but recently I've noticed many more companies going this route. You download a free trial, which runs for 30 days or so, and then it quits working. If you like the software, you pay a nominal fee, usually a one time charge that gets you a year of upgrades and service. After a year, you can opt to upgrade if you want. The software is clearly commercial quality, very polished and well supported. But the twist is the cost is low enough you wouldn't mind paying out of pocket. Here are several good examples:

  • SnagIt is a powerful screen capture utility for the PC written by the makers of Camtasia (which unfortunately, is not cheap). I use it for all the screenshots in my books and articles. It costs $39.95 and includes free upgrades within the current major release.
  • MyEclipseIDE is a commercial Java EE development environment built on the open source Eclipse platform. It works on a subscription model starting at $29.95 per year. There are over 270,000 people subscribed currently.
  • Flickr is a web based photo sharing service. Basic usage is free, but you can get additional space and bandwidth with a "Pro" account for $24.95 per year. I couldn't find any published numbers of subscribers but I would guess it's in 6 or 7 figures.
  • Parallels Desktop, currently $49.99, lets you run Windows and Linux and MacOS at the same time on the same hardware. 

If you've ever tried to get an order for a  $499 development environment or a $699 profiler approved through a corporate purchasing department, you know that it's often more trouble than it's worth, especially when there are free alternatives available. But there is a sweet spot above $0 where software is "free enough" that either it's no trouble to get approved, or you can just pay for it yourself.

From the developer's point of view, I predict that as freeware alternatives and commoditization drives software prices downwards, more and more vendors are going to be trying to find that sweet spot. The good news is that by keeping costs down and volume up you can still be profitable there.