A worrying trend in IT

15 04 2009

You don’t have to look too hard on the internet to find businesses giving away solutions and services. I can’t think of any other industry where businesses actively choose to make a loss. For me, I find it hard to comprehend that individuals would offer their services for nothing, but when businesses start doing it, I fear for the IT industry as a whole…

Why offer software and services for free?

Well it seems to me to have all started with Search Engines. Obviously you can’t have people paying to use a search engine, however, how does a company that provides a highly valued service, do so for free, and bare the implementation costs? What business argument is there behind that?

Well the only argument is that of users. The more users you have using your service / software the more “value” it must have. Now turning that “value” into actual cash, proves to be a sticky area.

Money options?

So how does a company with millions of users, such as Google or Facebook actually turn these users into some form of cash flow?

Well, in the case of Google, Advertisements is the way forward. Advertisers pay to have a potential audience the size of that provided by Google. In addition, the actual advertisement cost is so small compared to that of TV, Radio or News papers. For companies and Google, this is a great arrangement, which is only possible because of the number of users Google receives.

Now this currently works well for Google, however is it the silver bullet for all? Probably not. It is hard to place a value on advertisements, and it’s even harder to place a value on an advert placed within another website, such as Facebook or Twitter.

Worrying trends

In the fight for users, companies are starting to provide software solutions for free. Cloud Computing services and access to free web based applications mean users are now questioning why they would pay for something, when they could get it for free. This undervalues so many solutions and services provided by IT companies, bringing such organisations under increasing pressure.

With the current economic trend, many small organisations are offering services at such vastly reduced rates that there is no way they can actually make a profit. Worryingly some IT developers and organisations feel this is the only way in which to win work.

Beware…

While the “users” model works for the likes of Google, the chances of it working for even big players, such as Facebook and Twitter are still uncertain. The main issue is, and will always be, that your business model is very volatile and relies on confidence of you keeping your market share of users. If you start to lose users, you will find your business will unravel far quicker than those businesses built on a more traditional model.

Not only is the quest for “users” highly risky, it is also damaging to the IT industry as a whole. With services and software being offered for nothing, just to get users to a site, it makes it increasingly harder for small IT businesses to actually deliver and sell their products. This in the end, can only lead to a “slow” down in creativity and worryingly a reduction in product / service competition.

Be true to yourself…

If you build and deliver software solutions, always charge correctly. Don’t get caught up into trying to win endless users to then fuel a business model that is potentially highly volatile, and flawed.

If you are an end user / consumer, remember if something is free there will be a catch. You only get what you pay for in life, and this is still true of the internet and web based applications. Ask yourself, just why are they offering this for free?

Advertisements

Actions

Information

4 responses

15 04 2009
Chris

Free software always comes bundled with even more free software, and often a few unwanted pc inhabitants.
The software is usually great until you try to do what you downloaded it for, then its time to pay for the codec or serial number that actually lets you do want you originally wanted the sofware for.

Paying for software is best as long as you get a more polished, working version of the freebie. If not its frustating to find a ‘free’ version of what you have just payed for……

15 04 2009
Andrew Smith @onedegree

This article looks at a new way of providing ads on your website / web content. Again, looking at how to monetize a user base…

http://mashable.com/2009/04/15/videoegg-twig/

15 04 2009
Letitia Hughes

hmm interesting thoughts. Will wait to see what happens next with Facebook, and whether they will need to change their businss model.

2 06 2009
Andrew Smith @onedegree

I think facebook has the potential to “earn” from its implementation, however I do strongly feel that there is probably one room for 1 maybe 2 at most of these types of websites. They rely on everyone of your friends being on there. If there are too many social media sites like this, then its hard to pick the one for you (especially if your friends are using lots of different social sites) and more importantly, harder to “earn” from such sites as you cannot ensure you keep the user base….

I think Facebook could make money from integrations with other services and providers, especially things like linking to XBOX live etc….Food for thought…

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s




%d bloggers like this: